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Labor Matching Behavior in Open Economies and Trade Adjustment


  • Sly, Nicholas


This paper develops a model of costly trade and team production to examine the matching behavior of skilled workers in an open economy. Trade liberalization leads to a redistribution of rents across firms that differ in export status. When heterogeneous workers can bargain effectively and capture these rents, trade liberalization changes the supply of skilled production teams available for hire. Trade is shown to rationalize the matching behavior of workers, causing skill-upgrading within firms and infra-marginal improvements to firm-level productivity. Gains in productivity via skill-upgrading are distinct, and complementary, to the gains realized as low productivity firms exit and high productivity firms expand. All firms experience changes in skill composition, rather than just those on the margin of exit or exporting. Openness benefits those employed at exporting firms, however the likelihood of benefiting from trade is not necessarily increasing in skill. Wages in the open economy are tied to both worker skill and job type.

Suggested Citation

  • Sly, Nicholas, 2008. "Labor Matching Behavior in Open Economies and Trade Adjustment," MPRA Paper 25693, University Library of Munich, Germany, revised Oct 2010.
  • Handle: RePEc:pra:mprapa:25693

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    References listed on IDEAS

    1. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.
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    3. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
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    Cited by:

    1. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
    2. Yanhui Wu, 2011. "Managerial Incentives and Compensation in a Global Market," CEP Discussion Papers dp1066, Centre for Economic Performance, LSE.
    3. Sly, Nicholas, 2010. "Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade," MPRA Paper 25004, University Library of Munich, Germany.

    More about this item


    Worker Heterogeneity; Wage Bargaining; Trade Adjustment; Matching;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity


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