IDEAS home Printed from https://ideas.repec.org/a/cup/intorg/v76y2022i1p70-104_4.html
   My bibliography  Save this article

Trade Liberalization and Labor Market Institutions

Author

Listed:
  • Baccini, Leonardo
  • Guidi, Mattia
  • Poletti, Arlo
  • Yildirim, Aydin B.

Abstract

While the firm-level distributional consequences of market liberalization are well understood, previous studies have paid only limited attention to how variations in domestic institutions across countries affect the winners and losers from opening up to trade. We argue that the presence of coordinated wage-bargaining institutions, which impose a ceiling on wage increases, and state-subsidized vocational training, which creates a large supply of highly skilled workers, generate labor market frictions. Upward wage rigidity, in particular, helps smaller firms weather the rising competition and increasing labor costs triggered by trade liberalization. We test this hypothesis using a firm-level data set of European Union countries, which includes more than 800,000 manufacturing firms between 2003 and 2014. We find that, for productive firms, gains from trade are 20 percent larger in countries with liberal market economies than they are in coordinated market economies. Symmetrically, less productive firms in coordinated market economies experience significantly smaller revenue losses compared to liberal market economies. We show that both the presence of an institutionalized wage ceiling and the availability of subsidized vocational training are key mechanisms for reducing the reallocation of revenue from unproductive to productive firms in coordinated market economies compared to liberal market economies. In line with our theory, we find that wages and employment in liberalized industries increase differentially across both types of labor markets. Finally, we provide suggestive evidence that trade liberalization triggers a differential demand for redistribution at the individual level across different labor markets, which is in line with our firm-level analysis.

Suggested Citation

  • Baccini, Leonardo & Guidi, Mattia & Poletti, Arlo & Yildirim, Aydin B., 2022. "Trade Liberalization and Labor Market Institutions," International Organization, Cambridge University Press, vol. 76(1), pages 70-104, January.
  • Handle: RePEc:cup:intorg:v:76:y:2022:i:1:p:70-104_4
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0020818321000138/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Crescioli, Tommaso, 2024. "Reinforcing each other: how the combination of European and domestic reforms increased competition in liberalized industries," LSE Research Online Documents on Economics 123605, London School of Economics and Political Science, LSE Library.
    2. Bosmans, Kim & Vignola, Emilia F. & Álvarez-López, Valentina & Julià, Mireia & Ahonen, Emily Q. & Bolíbar, Mireia & Gutiérrez-Zamora, Mariana & Ivarsson, Lars & Kvart, Signild & Muntaner, Carles & O'C, 2023. "Experiences of insecurity among non-standard workers across different welfare states: A qualitative cross-country study," Social Science & Medicine, Elsevier, vol. 327(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:intorg:v:76:y:2022:i:1:p:70-104_4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/ino .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.