Too Much of a Good Thing? Labor Market Imperfections as a Source of Exceptional Exporter Performance

46 Pages Posted: 18 Sep 2017

See all articles by Carsten Eckel

Carsten Eckel

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP); CESifo (Center for Economic Studies and Ifo Institute)

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Date Written: September 2017

Abstract

Ex-post firm heterogeneity can result from different strategies to overcome labor market imperfections by ex-ante identical firms—with far-reaching consequences for the welfare effects of trade. With asymmetric information about workers’ abilities and costly screening, in equilibrium some firms screen and pay wages based on the true productivity of their workers, and some firms do not screen and pay wages based on the average productivity of their workforce. Screening firms are larger, attract better workers and pay lower effective wages. This results in excessive consumption of resources by large firms relative to the social optimum. Trade liberalization then has an ambiguous effect on aggregate welfare: lower trade costs improve access to foreign goods but also exacerbate the labor market distortion as more resources are transferred to large firms. The model highlights the need to know why firms “excel” before drawing welfare conclusions regarding cross firm reallocations of resources.

Suggested Citation

Eckel, Carsten and Yeaple, Stephen R., Too Much of a Good Thing? Labor Market Imperfections as a Source of Exceptional Exporter Performance (September 2017). NBER Working Paper No. w23834. Available at SSRN: https://ssrn.com/abstract=3038662

Carsten Eckel (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Schackstr. 4
Munich, 80539
Germany

HOME PAGE: http://www.vwl.uni-muenchen.de/eckel

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
8148655452 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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