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Labor market institutions, firm-specific skills, and trade patterns

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  • Tang, Heiwai

Abstract

This paper studies how a country's labor market institutions, by affecting workers' skill acquisition, can shape its export patterns. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, labor market protection raises workers' incentives to acquire firm-specific skills relative to general skills, turning labor laws into a source of comparative advantage. In particular, the model shows that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors at both the intensive and extensive margins. To test the theoretical predictions, I construct sector proxies for the firm-specific and industry-specific skill intensity by estimating returns to firm tenure and industry tenure for different U.S. manufacturing sectors during the 1974–1993 period. By estimating sector-level gravity equations for 84 countries using the Helpman–Melitz–Rubinstein (2008) framework, I find evidence supporting the predicted effects of labor market institutions at both margins of exports.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 2 ()
Pages: 337-351

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Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:337-351
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

Keywords: Labor market institutions; Margins of trade; Trade patterns; Firm-specific skills;

Other versions of this item:

Find related papers by JEL classification:
  • F10 - International Economics - - Trade - - - General
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade
  • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
  • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
  • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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Cited by:

  1. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
  2. Matilde Bombardini & Giovanni Gallipoli & Germán Pupato, 2009. "Skill Dispersion and Trade Flows," NBER Working Papers 15097, National Bureau of Economic Research, Inc.
  3. Nathan Nunn & Daniel Trefler, 2013. "Domestic Institutions as a Source of Comparative Advantage," NBER Working Papers 18851, National Bureau of Economic Research, Inc.
  4. Olivier Cardi & Romain Restout, 2013. "Imperfect Mobility Of Labor Across Sectors: A Reappraisal Of The Balassa-Samuelson Effect," Working Papers of BETA 2013-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  5. Asuyama, Yoko, 2012. "Skill Distribution and Comparative Advantage: A Comparison of China and India," World Development, Elsevier, vol. 40(5), pages 956-969.
  6. Yannis M. Ioannides, . "A DMP Model of Intercity Trade," Discussion Papers Series, Department of Economics, Tufts University 0808, Department of Economics, Tufts University.

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