Labor Market Frictions, Firm Growth, and International Trade
NBER Working Paper No. 19492
This paper develops a model to study the aggregate effects of labor market frictions in an open economy through their impact on the growth and investment decisions of rms. The model features interactions between firms' dynamic fixed investments in exporting and search frictions with job-to-job mobility. Search frictions induce slow firm growth and are a source of dispersion in firm size and export status. Job-to-job transitions are a crucial ingredient of the analysis, as in their absence search frictions do not affect outcomes per worker. The model is tractable for general-equilibrium analysis and accommodates several extensions which are useful for quantitative work. A calibration to Argentina's economy suggests that frictions in job-to-job mobility may have considerable effects on firm growth and aggregate income, and that barriers to worker mobility across firms may be relevant to measure the gains from international trade.
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This paper was revised on November 6, 2013