Working Paper: CEPR ID: DP7577
Authors: Alfonso Irarrazabal; Andreas Moxnes; Karenhelene Ulltveit Moe
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 exporters? superior performance is due to intrinsic firm efficiency. We investigate the importance of intrinsic firm efficiency relative to input quality as sources of exporters? 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 Codes: D24; F12; F14; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade liberalization (F13) | Aggregate productivity gains (O49) |
| Less efficient firms exit the market (L19) | Labor reallocation to better-performing firms (J29) |
| Labor reallocation dynamics (J69) | Aggregate productivity impact (O49) |
| Intrinsic efficiency (D61) | Exporter premium (F10) |
| Workforce quality (J24) | Exporter premium (F10) |
| Workforce characteristics control (J21) | Exporter TFP premium (F16) |