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Capacity Constraining Labor Market Frictions in a Global Economy

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  • Christian Holzner
  • Mario Larch

Abstract

Convex vacancy creation costs shape firms’ responses to trade liberalization. They induce capacity constraints by increasing firms’ cost of production, leading a profit maximizing firm not to fully meet the increased foreign demand. Hence, firms will only serve a few export markets. More productive firms will export to more countries and charge higher or similar prices compared to less productive firms. Trade liberalization also affects labor market outcomes. Increased profits by exporting firms triggers firm entry, reduces unemployment and increases wage dispersion in the on-the-job search model with monopolistic competition.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3597.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3597

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Related research

Keywords: on-the-job search; capacity constraints; international trade; heterogeneous firms; monopolistic competition;

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References

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  1. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, Elsevier, vol. 146(1), pages 39-73, January.
  2. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, Econometric Society, vol. 79(5), pages 1453-1498, 09.
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  7. Blum, Bernardo S. & Claro, Sebastian & Horstmann, Ignatius J., 2013. "Occasional and perennial exporters," Journal of International Economics, Elsevier, Elsevier, vol. 90(1), pages 65-74.
  8. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
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  10. Ludema, Rodney D., 2002. "Increasing returns, multinationals and geography of preferential trade agreements," Journal of International Economics, Elsevier, Elsevier, vol. 56(2), pages 329-358, March.
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  13. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3548, C.E.P.R. Discussion Papers.
  14. Haltiwanger, John & Scarpetta, Stefano & Schweiger, Helena, 2014. "Cross country differences in job reallocation: The role of industry, firm size and regulations," Labour Economics, Elsevier, Elsevier, vol. 26(C), pages 11-25.
  15. Marc Blatter & Samuel Muehlemann & Samuel Schenker, 2008. "The Costs of Hiring Skilled Workers," Economics of Education Working Paper Series, University of Zurich, Institute for Strategy and Business Economics (ISU) 0015, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Nov 2009.
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Cited by:
  1. Gabriel Felbermayr & Giammario Impullitti & Julien Prat, 2014. "Firm Dynamics and Residual Inequality in Open Economies," Discussion Papers 2014-01, University of Nottingham, GEP.

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