DP9732 Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy

Author(s): Kerem Cosar, Nezih Guner, James R Tybout
Publication Date: November 2013
Keyword(s): firm dynamics, inequality, International trade, labor market frictions, size distribution
JEL(s): E24, F12, F16, J64, L11
Programme Areas: International Macroeconomics, Labour Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9732

This paper explores the combined effects of reductions in trade frictions, tariffs, and firing costs on firm dynamics, job turnover, and wage distributions. It uses establishment-level data from Colombia to estimate an open economy dynamic model that links trade to job flows in a new way. The fitted model captures key features of Colombian firm dynamics and labor market outcomes, as well changes in these features during the past 25 years. Counterfactual experiments imply that integration with global product markets has increased both average income and job turnover in Colombia. In contrast, the experiments find little role for this country's labor market reforms in driving these variables. The results speak more generally to the effects of globalization on labor markets in Latin America and elsewhere.