Heterogeneous Firms or Heterogeneous Workers? Implications for the Exporter Premium and the Impact of Labor Reallocation on Productivity

30 Pages Posted: 11 Jan 2010

See all articles by Alfonso A. Irarrazabal

Alfonso A. Irarrazabal

New York University (NYU) - Department of Economics

Andreas Moxnes

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 2009

Abstract

We expect trade liberalization to give rise to aggregate productivity gains, as the least efficient firms are forced out, and labor is reallocated towards the best performing firms. But the positive intra-industry reallocation effects rely on the stark assumption that exportersÂ’ superior performance is due to intrinsic firm efficiency. We investigate the importance of intrinsic firm efficiency relative to input quality as sources of exportersÂ’ productivity premium, employing a matched employer-employee data set for Norwegian manufacturing. Augmented measures of total factor productivity which take worker characteristics into account, indicate that up to 67 percent of the exporter premium reflects differences in workforce rather than true efficiency. Simulating the labor dynamics proceeding firm exits, we illustrate that the benign impact on aggregate productivity from firm exits may be reduced because of worker reallocation.

Keywords: exporters, firm heterogeneity, labor reallocation, productivity measurement, worker heterogeneity

JEL Classification: D24, F12, F14, F16

Suggested Citation

Irarrazabal, Alfonso A. and Moxnes, Andreas and Ulltveit-Moe, Karen Helene, Heterogeneous Firms or Heterogeneous Workers? Implications for the Exporter Premium and the Impact of Labor Reallocation on Productivity (November 2009). CEPR Discussion Paper No. DP7577, Available at SSRN: https://ssrn.com/abstract=1533182

Alfonso A. Irarrazabal (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Andreas Moxnes

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Karen Helene Ulltveit-Moe

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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