Labor Market Institutions, Firm-specific Skills, and Trade Patterns

Heiwai Tang

No 755, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: This paper studies how cross-country differences in labor market institutions shape the pattern of international trade, focusing on workers' skill acquisition. I develop a model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, workers have more incentive to acquire firm-specific skills relative to general skills in a more protective labor market. When sectors are different in the dependence on these two types of skills, workers' skill acquisition turns labor laws into a source of comparative advantage. By embedding the model in an open-economy framework with heterogeneous firms, sectors with different levels of dependece on firm-specific skills, and countries with varying degrees of labor protection, I show that countries with more protective labor laws export relatively more in firm-specific, skill-intensive sectors through both the intensive and extensive margins of trade. I then estimate returns to firm tenure for different U.S. manufacturing sectors over the period of 1974-1993, and use the estimates as sector proxies for firm-specific skill intensity to test the theoretical predictions. By implementing the Helpman-Melitz-Rubeinstein (2008) framework to estimate sector-level gravity equations for 84 countries in 1995, I find supporting evidence for the predicted effects of labor market institutions on both margins of trade.

Keywords: Labor market institutions; heterogeneous firms; margins of trade; trade patterns; firm-specific skills (search for similar items in EconPapers)
JEL-codes: F10 F12 F14 F16 J24 L22 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-hrm, nep-int and nep-lab
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Labor market institutions, firm-specific skills, and trade patterns (2012)
Working Paper: Labor Market Institutions, Firm-specific Skills, and Trade Patterns (2010)
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