Digital Imports and Firm‐Level Employment: Evidence From China

ABSTRACT The automation literature suggests that digitalization results in less jobs and lower demand for labour because of the substitutability of humans by digital equipment in the production process. This paper uses Chinese firm‐level data with information on firm‐level digital import shocks by type of digital equipment, to examine the impact on firm‐level employment. Interestingly, we estimate a positive and statistically significant average treatment effect on the treated (ATT), providing evidence of an overall employment gain associated with digital imports. This finding is further supported by the instrumental variable (IV) estimates, which indicate that, on average, digital imports are associated with a significant increase in firm‐level employment of approximately 15.7%. Firms that start to import digital equipment increase their output, market share and productivity (TFP), as well as save expenses in management and marketing. However, we find heterogeneity in the employment effect depending on the type of digital equipment. Imports of robots and computers reduce firm‐level employment, while imports of communication equipment, consumer electronic equipment and electronic components have a positive effect on firm‐level employment.