Firm Entry and Exit, Labor Demand, and Trade Reform : Evidence from Chile and Colombia
There are increasing fears that trade reform - and globalization generally - will increase the uncertainty the average (especially less skilled) worker faces. If product markets become more competitive and the access to foreign inputs is increased,...
Main Authors: | , , |
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Language: | English en_US |
Published: |
World Bank, Washington, DC
2014
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Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2001/08/1561499/firm-entry-exit-labor-demand-trade-reform-evidence-chile-colombia http://hdl.handle.net/10986/19571 |
Summary: | There are increasing fears that trade
reform - and globalization generally - will increase the
uncertainty the average (especially less skilled) worker
faces. If product markets become more competitive and the
access to foreign inputs is increased, will demand for
workers among existing firms become more elastic? Will labor
markets become more volatile because bad shocks to output
will translate into greater impacts on wages and employment?
So far the literature on this question has focused almost
entirely on labor demand within continuing firms. But much
of the movement in the job market arises from the entry and
exit of firms. The authors show that firms entering and
exiting a market contribute almost as much to employment
changes as firms continuing in a market. In several samples,
firms entering and exiting affected the net change
in-positions more than the expansion of continuing plants
did, although contributions varied greatly across the
business cycle and period of adjustment. Estimates of labor
demand elasticities of entering and exiting firms were
surprisingly similar in Chile and Colombia and somewhat
higher than elasticities for firms that survived. Estimates
of the effect of trade liberalization offer only ambiguous
lessons on trade reform's probable impact on these
elasticities. The data suggest that in Chile greater
exchange rate protection does reduce the wage-employment
elasticity of entering and exiting plants, but the results
are reversed in Colombia's case. Moreover, in Colombia
higher import penetration lowers the elasticity of labor
demand and in Chile higher tariffs increase it. These
findings, combined with very ambiguous results from probit
regressions on the determinants of plant exit, suggest that
circumspection is warranted in asserting that trade
liberalization will increase the wage elasticity of labor demand. |
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