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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. 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. Olivier CARDI & Romain RESTOUT, 2015. "Imperfect Mobility of Labor Across Sectors : A réappraisal of the Balassa-Samuelson Effect," LEO Working Papers / DR LEO 2297, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
  3. Maria Bas & Juan Carluccio, 2015. "The Impact of Worker Bargaining Power on the Organization of Global Firms," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01297158, HAL.
  4. Antonio Ciccone & Elias Papaioannou, 2016. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," NBER Working Papers 22368, National Bureau of Economic Research, Inc.
  5. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
  6. repec:era:wpaper:dp-2015-48 is not listed on IDEAS
  7. Yannis M. Ioannides, 2015. "A DMP Model of Intercity Trade," Discussion Papers Series, Department of Economics, Tufts University 0808, Department of Economics, Tufts University.
  8. Nathan Nunn & Daniel Trefler, 2013. "Domestic Institutions as a Source of Comparative Advantage," NBER Working Papers 18851, National Bureau of Economic Research, Inc.
  9. Asuyama, Yoko, 2012. "Skill Distribution and Comparative Advantage: A Comparison of China and India," World Development, Elsevier, vol. 40(5), pages 956-969.
  10. Jie Cai & Andrey Stoyanov, 2015. "Population Aging and Comparative Advantage," Working Papers 2015_1, York University, Department of Economics.
  11. Tan, Zhibo & Zhang, Xiaobo, 2016. "Does female labor scarcity encourage innovation?: Evidence from China’s gender imbalance," IFPRI discussion papers 1540, International Food Policy Research Institute (IFPRI).

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