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Heterogeneous firms or heterogeneous workers? Implications for the exporter premium and the impact of labor reallocation on productivity

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  • Irarrazabal, Alfonso
  • Moxnes, Andreas
  • Ulltveit-Moe, Karen-Helene

Abstract

We expect trade liberalization to give rise to aggregate productivity gains, as the least efficient firms are forced out, and labor is reallocated towards the best performing firms. But the positive intra-industry reallocation effects rely on the stark assumption that exporters’ superior performance is due to intrinsic firm efficiency. We investigate the importance of intrinsic firm efficiency relative to input quality as sources of exporters’ productivity premium, employing a matched employer-employee data set for Norwegian manufacturing. Augmented measures of total factor productivity which take worker characteristics into account, indicate that up to 67 percent of the exporter premium reflects differences in workforce rather than true efficiency. Simulating the labor dynamics proceeding firm exits, we illustrate that the benign impact on aggregate productivity from firm exits may be reduced because of worker reallocation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7577.

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Date of creation: Nov 2009
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Handle: RePEc:cpr:ceprdp:7577

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Keywords: exporters; firm heterogeneity; labor reallocation; productivity measurement; worker heterogeneity;

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References

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  1. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-46, July.
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  12. Jeremy T. Fox & Valérie Smeets, 2011. "Does Input Quality Drive Measured Differences In Firm Productivity?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 961-989, November.
  13. Judith K. Hellerstein & David Neumark, 2007. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 31-71 National Bureau of Economic Research, Inc.
  14. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
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Cited by:
  1. Carlsson, Mikael & Messina, Julián & Nordström Skans, Oskar, 2011. "Wage Adjustment and Productivity Shocks," Working Paper Series 253, Sveriges Riksbank (Central Bank of Sweden).
  2. Jože P. Damijan & Luca Marcolin, 2013. "Global firms and wages: is there a rent sharing channel?," Working Papers 164, European Bank for Reconstruction and Development, Office of the Chief Economist.
  3. Fabien Candau & Marc Fleurbaey, 2011. "Agglomeration and Welfare with Heterogeneous Preferences," Open Economies Review, Springer, vol. 22(4), pages 685-708, September.
  4. Fabien CANDAU & Elisa DIENESCH, 2013. "Globalization, Spatial Sorting and the Geography of Education," Working Papers 2012-2013_7, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2013.
  5. Luca David Opromolla, 2013. "Trade and wage inequality," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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