Capacity constraining labor market frictions in a global economy

Holzner, Christian; Larch, Mario (2011): Capacity constraining labor market frictions in a global economy. CESifo Working Paper: Trade Policy, 3597

Abstract

Convex vacancy creation costs shape firms’ responses to trade liberalization. They induce capacity constraints by increasing firms’ cost of production, leading a profit maximizing firm not to fully meet the increased foreign demand. Hence, firms will only serve a few export markets. More productive firms will export to more countries and charge higher or similar prices compared to less productive firms. Trade liberalization also affects labor market outcomes. Increased profits by exporting firms triggers firm entry, reduces unemployment and increases wage dispersion in the on-the-job search model with monopolistic competition.

• Item Type: Paper (Discussion Paper)
• Faculties: Economics; Economics > Chairs > Chair in Public Finance
• Subjects: 300 Social sciences > 330 Economics
• Language: English