Working Paper: CEPR ID: DP12728
Authors: Clément Malgouyres; Thierry Mayer
Abstract: We investigate the role that labor costs hold in exporters' performance. To do so, weexploit a large-scale French reformthat granted most firms a tax credit proportional to the wagebill of their employees paid below a giventhreshold. This policy effectively translated into a cut in labor cost whose magnitude variesdepending on firm-specific wage structures. We use the predicted treatment intensity basedon pre-reform composition of the labor force as an instrument for the actual policy-inducedfirm-level change in labor costs. Although our point estimates are consistent with commonlyestimated firm-level trade elasticities combined with reasonable labor shares in totalcosts, coefficients are found to be very noisy, suggesting lack ofrobust evidence of a causal effect of thepolicy. We discuss several potential explanations for our results as well as theirimplications.
Keywords: labor costs; firm-level exports; competitiveness
JEL Codes: H32; F14; F16; D04
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CICE policy (L53) | reduction in labor costs (J39) |
| reduction in labor costs (J39) | export performance (F17) |
| 10% increase in unit labor costs (J39) | 2% decrease in exports (F69) |
| treatment intensity (C32) | export probabilities (C59) |
| CICE policy (L53) | export performance (F17) |