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Labor Market Institutions, Firm-specific Skills, and Trade Patterns

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  • Heiwai Tang

    ()
    (Tufts University and Centro Studi Luca d’Agliano)

Abstract

This paper studies how cross-country differences in labor market institutions shape the pattern of international trade, focusing on workers’ skill acquisition. I develop a model in which workers un-dertake non-contractible activities to acquire firm-specific skills on the job. In the model, workers have more incentive to acquire firm-specific skills relative to general skills in a more protective labor market. When sectors are different in the dependence on these two types of skills, workers’ skill acquisition turns labor laws into a source of comparative advantage. By embedding the model in an open-economy framework with heterogeneous firms, sectors with different levels of dependence on firm-specific skills, and countries with varying degrees of labor protection, I show that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors through both the intensive and extensive margins of trade. I then estimate returns to firm tenure for different U.S. manufacturing sectors over the period of 1974-1993, and use the estimates as sector proxies for firm-specific skill intensity to test the theoretical predictions. By implementing the Helpman-Melitz-Rubinstein (2008) framework to estimate sector-level gravity equations for 84 countries in 1995, I find supporting evidence for the predicted effects of labor market institutions on both margins of trade.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 301.

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Length: 65
Date of creation: 30 Nov 2010
Date of revision:
Handle: RePEc:csl:devewp:301

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Keywords: Labor market institutions; heterogeneous �rms; margins of trade; trade patterns; firm-specific skills;

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Cited by:
  1. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-48, August.
  2. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
  3. Nathan Nunn & Daniel Trefler, 2013. "Domestic Institutions as a Source of Comparative Advantage," NBER Working Papers 18851, National Bureau of Economic Research, Inc.

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