Labor Market Imperfections, Markups and Productivity in Multinationals and Exporters

Tinbergen Institute Discussion Paper 2017-113/V

57 Pages Posted: 5 Dec 2017

See all articles by Sabien Dobbelaere

Sabien Dobbelaere

Vrije Universiteit Amsterdam - Department of Economics; Tinbergen Institute; IZA Institute of Labor Economics

Kozo Kiyota

Keio University - Keio Economic Observatory

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2017

Abstract

This paper examines the links between the internationalization mode of firms and market imperfections in product and labor markets. We develop a framework for modelling heterogeneity across firms in terms of (i) product market power (price-cost markups), (ii) labor market imperfections (workers' bargaining power during worker-firm negotiations or firm's degree of wage-setting power) and (iii) revenue productivity. We apply this framework to analyze whether the pricing behavior of firms in product and labor markets differs across firms that engage in different forms of internationalization. Engagement in international activities is found to matter for determining not only the type of imperfections in product and labor markets but also the degree of imperfections. Clear differences in behavior between firms that serve the foreign market either through exporting or through FDI are observed. Being an exporter introduces allocative inefficiencies in product as well as labor markets as we find export status to be positively correlated with both product market power (markups) and market power consolidated on the labor supply side (workers' bargaining power). But exporting firms where search frictions are inducing wages to vary with revenue are less able to exploit wage-setting power. Firms with foreign subsidiaries, on the other hand, seem to reduce price distortions in product and labor markets. In addition, we observe heterogeneous returns to being an exporter/MNE within an industry and also discern cross-industry differences.

Keywords: Rent Sharing, Monopsony, Price-Cost Mark-ups, Productivity, Exporting, Multinational Firms, Panel Data

JEL Classification: C23, D24, F14, F16, J50, L13

Suggested Citation

Dobbelaere, Sabien and Kiyota, Kozo, Labor Market Imperfections, Markups and Productivity in Multinationals and Exporters (December 1, 2017). Tinbergen Institute Discussion Paper 2017-113/V. Available at SSRN: https://ssrn.com/abstract=3080853 or http://dx.doi.org/10.2139/ssrn.3080853

Sabien Dobbelaere (Contact Author)

Vrije Universiteit Amsterdam - Department of Economics ( email )

De Boelelaan 1105
NL- Amsterdam, NL-1081 HV
Netherlands
0031 20 598 28 74 (Phone)

Tinbergen Institute

Keizersgracht 482
NL- Amsterdam, NL-1017 EG
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
D- Bonn, 53072
Germany

Kozo Kiyota

Keio University - Keio Economic Observatory ( email )

Mita 2-15-45, Minato-ku
Tokyo, 108-8345
Japan

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