Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy

Abstract

As Latin American countries have become more open, their job turnover rates have risen, their informal sectors have become larger, and their wage distributions have become less equal. We develop a dynamic general equilibrium trade model that explains these phenomena. The model combines standard search frictions in labor markets with heterogeneous …rms that experience ongoing productivity shocks. Each period, …rms decide whether to exit or continue producing.Those …rms that remain active choose their export volumes and adjust their employment levels through vacancy postings or lay-o¤s.Openness matters in our model because it makes pro…ts more sensitive to productivty shocks, as Rodrik (1997) argued. Thus when trade barriers are low, …rms drawing negative shocks shed labor relatively rapidly (and perhaps exit), while …rms drawing positive shocks acquire new workers relatively rapidly. Further, since openness decreases the rents of the former and increases the rents of the latter, it spreads the wage distribution. After …tting this model to Colombian micro data on establishments and households, we isolate the e¤ects of trade frictions on labor market outcomes using counter-factual simulations. Preliminary results suggest that the mechanisms highlighted by our model can be important.

Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock

“…11 Our analysis differs from Acemoglu et al (2016) not only due to general equilibrium effects, but also in terms of the level of detail in the industries used and the criteria for the sample selection of households. 12 For instance, see Dix-Carneiro and Kovak (2017), Cosar (2013), Coşar, Guner, and Tybout (2016), Kondo (2018), and Menezes-Filho and Muendler (2011) and the references therein. Time is discrete, and we denote it by t = 0 1 2 .…”

Firm‐level Investment and Export Dynamics*

“…Similarly, a number of recent papers recognize the role of increasing marginal costs, often justified by a fixed capital input, in determining firm-level trade outcomes. For example, Ruhl and Willis (2008), Nguyen and Schaur (2011), Cosar et al (2014), Vannoorenberghe (2012), and Ahn and McQuoid (2012) suggest that allowing for increasing marginal costs is key to capturing sales correlation across markets or export dynamics. 4 Our model links exporting and investment through three mechanisms.…”

Youth earnings and labour market volatility in Europe

“…Openness to trade: Trade openness has an ambiguous effect on job turnover and wage inequality (Coşar, Guner and Tybout, 2016). On the one hand, it increases the sensitivity of a firm's revenues to its productivity and employment levels, which in turn increases job turnover.…”

“…Openness to trade: As outlined above, trade openness is likely to increase wage inequality (Coşar, Guner and Tybout, 2016), as is trade liberalization (Traca, 2005).…”