Quality Upgrading, Skill Demand and International Trade

The Case of German Manufacturing

Abstract

The present paper contributes to the ongoing debate about how international trade can affect the demand for skills in industrial countries by estimating the impact of quality competition on the relative demand for low skilled workers in German manufacturing between 1995 and 2004. Results reveal a statistically significant negative effect albeit relatively small in size with quality competition accounting for approximately 5% of the overall decline in low skilled workers' wage bill share. This effect entirely stems from quality competition with other advanced countries. The influence of trade in different qualities with newly industrializing economies is negligible.