Labor Matching Behavior in Open Economies and Trade Adjustment

This paper develops a model of costly trade and team production to examine the matching behavior of skilled workers in an open economy. Trade liberalization leads to a redistribution of rents across firms that differ in export status. When heterogeneous workers can bargain effectively and capture these rents, trade liberalization changes the supply of skilled production teams available for hire. Trade is shown to rationalize the matching behavior of workers, causing skill-upgrading within firms and infra-marginal improvements to firm-level productivity. Gains in productivity via skill-upgrading are distinct, and complementary, to the gains realized as low productivity firms exit and high productivity firms expand. All firms experience changes in skill composition, rather than just those on the margin of exit or exporting. Openness benefits those employed at exporting firms, however the likelihood of benefiting from trade is not necessarily increasing in skill. Wages in the open economy are tied to both worker skill and job type