Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy

TLDR

The study investigates how lowering trade frictions, tariffs, and firing costs jointly affect firm dynamics, job turnover, and wage distribution. Using Colombian establishment‑level data, the authors estimate an open‑economy dynamic model that links trade to job flows. The model reproduces Colombian firm dynamics and labor market trends, and counterfactuals show that global product‑market integration raises average income and job turnover, whereas labor‑market reforms have little effect, implying globalization broadly shapes Latin American labor markets.

Abstract

This paper explores the combined effects of reductions in trade frictions, tariffs, and firing costs on firm dynamics, job turnover, and wage distributions. It uses establishment-level data from Colombia to estimate an open economy dynamic model that links trade to job flows in a new way. The fitted model captures key features of Colombian firm dynamics and labor market outcomes, as well changes in these features during the past 25 years. Counterfactual experiments imply that integration with global product markets has increased both average income and job turnover in Colombia. In contrast, the experiments find little role for this country's labor market reforms in driving these variables. The results speak more generally to the effects of globalization on labor markets in Latin America and elsewhere.