International Trade and the Composition of Labor Market Turnover

By Sly, Nicholas | Economic Inquiry, January 2013 | Go to article overview

International Trade and the Composition of Labor Market Turnover


Sly, Nicholas, Economic Inquiry


I. INTRODUCTION

Competing in foreign markets requires that firms use production techniques and a workforce that are productive enough to justify the costs of crossing borders. Technology adoption and recruiting costs are hardly one-time expenses. Rather production lines must constantly be updated, generating simultaneous job destruction and creation. With production capacity in place, firms must frequently recruit workers to fill positions as employees retire, relocate, or simply switch employers. Forward-looking firms will account for the expected costs of maintaining their production lines and maintaining their workforce over time. Thus, the institutional and structural costs associated with mobility in the labor market can have a direct impact on the incentives of firms to adopt technologies which allow for profitable entry into foreign markets.

This analysis of labor market turnover in an open economy has two purposes. First, I show that labor market turnover can have a direct impact on bilateral trade patterns by influencing firm technology choices. The decision to compete in foreign markets is linked strongly with a firm's choice of production techniques. Many firms that manufacture similar goods use different methods of production and hire different types of workforces (Doms, Dunne, and Troske 1997). These differences in production techniques are stark when comparing exporters and non-exporters; see Bernard and Jensen (1999). Following periods of trade liberalizations, Fernandes (2007) and Bustos (2011) find that firm-level productivity growth can be attributed partly to upgrades in production techniques. For all these reasons, the effect of labor mobility costs on technology adoption can directly influence world trade patterns.

The second contribution is to demonstrate the independent roles of worker turnover and job turnover in motivating participation in international markets. Labor mobility arises because of dynamics on both the demand and supply side of the labor market. While the relationship between job turnover and international trade has received some attention, worker turnover has largely been ignored. Similarly, the relationship between trade patterns and the relative volumes of job and worker turnover has been unexplored. The composition of labor mobility impacts export behavior because firms are concerned with both replacing jobs and replacing workers. Here I show that the expected volumes of worker and job turnover have opposing effects on the propensity of a firm to export. As a result, differences in the composition of turnover across sectors lead to differences in industry export intensity.

Labor markets are typically characterized by substantial reallocations of workers on an annual basis. Davis, Haltiwanger, and Schuh (1996), DHS from this point forward, provide detailed evidence on the patterns of job turnover of U.S. manufacturing industries. They find that in nearly all industries, a remarkably large number of jobs are being created and destroyed simultaneously, and that the flow of workers occurs predominantly across firms within the same industry. From 1973 to 1988, between 11% and 19% of the workforce in specific industries was reallocated across production locations. Roberts and Tybout (1996) document similar patterns of job turnover in developing countries. Labor market turnover costs are likely to influence firm behavior the world over.

Even when jobs are stable, there is continuous mobility of workers across firms. Burgess, Lane, and Stevens (2000a), BLS henceforth, use employer-level data to parse the contributions of worker versus job turnover and find considerable labor reallocation due solely to worker mobility. As with job turnover, worker turnover rates exhibit significant variation across industries. Yet, it is important to note that BLS find that the incidence of worker turnover has only a weak correlation with job turnover experienced by firms.

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