Walls of technology, cracks in employment: The labor effects of foreign technology sanctions

Global technological fragmentation has become a defining feature of the contemporary geopolitical economy. As nations erect barriers around strategic technologies, they not only reshape innovation ecosystems but also alter the economic foundations of employment. This study examines the labor market effects of foreign technology sanctions by exploiting the 2018 U.S. Entity List as a quasi-natural experiment, using the difference-in-differences model on the panel of Chinese A-share listed firms from 2014 to 2024. The results show that technology sanctions lead to a significant and persistent decline in employment among the targeted Chinese firms, indicating that such restrictions impose substantial labor costs beyond their intended strategic objectives. The effect is particularly pronounced for non-state-owned enterprises and manufacturing firms. Mechanism analysis indicates that the employment effect operates through two mediating channels: sanctions tighten firms' financing constraints, weakening their ability to retain workers, and they prompt a shift toward skill-intensive production that raises the share of technical staff while reducing overall employment. These findings highlight the often-overlooked human dimension of technological decoupling, revealing that policy interventions aimed at restricting knowledge flows may inadvertently erode the very employment foundations that support economic growth. • Explores how technology sanctions reshape employment and firm adaptation. • Treats the 2018 U.S. Entity List as an exogenous policy-induced shock. • Shows sanctions impose unintended labor costs beyond strategic aims. • Reveals financial stress and skill upgrading as main adjustment mechanisms. • Informs technology governance on the social impact of decoupling policies.