Labor Market Institutions, Firm-specific Skills, and Trade Patterns

This paper studies how cross-country di¤erences in labor market institutions shape the pat-tern of international trade, focusing on workersskill acquisition. I develop a model in which workers undertake non-contractible activities to acquire \u85rm-speci\u85c skills on the job. In the model, workers have more incentive to acquire \u85rm-speci\u85c skills relative to general skills in a more protective labor market. When sectors are di¤erent in the dependence on these two types of skills, workersskill acquisition turns labor laws into a source of comparative advantage. By embedding the model in an open-economy framework with heterogeneous \u85rms, sectors with di¤erent levels of dependence on \u85rm-speci\u85c skills, and countries with varying degrees of la-bor protection, I show that countries with more protective labor laws export relatively more in rm-speci c skill-intensive sectors through both the intensive and extensive margins of trade. I then estimate returns to \u85rm tenure for di¤erent U.S. manufacturing sectors over the period of 1974-1993, and use the estimates as sector proxies for \u85rm-speci\u85c skill intensity to test the theoretical predictions. By implementing the Helpman-Melitz-Rubinstein (2008) framework to estimate sector-level gravity equations for 84 countries in 1995, I \u85nd supporting evidence for the predicted e¤ects of labor market institutions on both margins of trade