Globalisation, Product Quality and Employment Effects – MOQAT

The working package 2 entitled “Input-quality upgrading, firm product scope and employment effects” is a join work of Maria Bas (Université Paris 1) and Caroline Paunov (OECD). We study input-trade liberalization’s impact on access to high-quality imported intermediate inputs and consequent impacts on output quality and implications on firms’ demand for skills. Using census data at firm-product level for Ecuador for 1997-2007 we exploit exogenous tariff changes at Ecuador’s entry to the World Trade Organization for causal identification.

The working package 3 entitled “Foreign Shocks, Skilled and Unskilled labor Volatility” is a join work of Maria Bas (Université Paris 1), Pamela Bombarda (Université de Cergy), Gianluca Orefice (Université Dauphine) and Sebastien Jean( CEPII). Relying on detailed firm-level data from France for the period 1996-2007, we show that firms with higher export intensity exhibit a lower volatility of skilled labor demand relative to the volatility of unskilled labor demand. Our identification strategy is based on an instrumental variable approach to pro- vide evidence on the causal effect of the export performance of the firm on the volatility of employment of different skills.

During the first 18 months, we have completed two working packages (number 2 and 3) from the five in the ANR MOQAT. In the working package 2 we demonstrate that skilled labor is indispensable for firms to use high-quality imported inputs to produce higher output quality. High-quality foreign intermediate inputs and not machinery imports drive output quality improvements and higher skill premia. This work is completed with a working paper from Paris 1 entitled “«What gains and distributional implications result from trade liberalization?” that is revised and resubmitted at the Journal of Development Economics (Rang 1 CNRS).

The findings of working package 3 suggest that exporting increases the stability of skilled jobs, but feeds the precariousness of unskilled ones. This work is completed with a working paper entitled “Firms’ Exports, Volatility and Skills: Evidence from France” that is revised and resubmitted at the European Economic Review (Rang 1 CNRS).

We have also started working on the three other working packages. For working package 1 entitled “Quality, Prices and Demand”, we have start working on the project on “Quality, Skills, Prices and Demand” join work of Maria Bas (Université Paris 1), Lionel Fontagné (Université Paris 1) and Gianluca Orefice (Université Dauphine). We investigate the adjustment to trade costs (tariffs and RER) of French exporters at different level of quality. In this project we rely on different measures of quality based on the skilled intensity of firms by matching the DADS data with customs French data. In DADS we have information on the occupation of workers and we can identify those workers associated with R&D activities. At the industry level we might have information on patent intensity by industry that can be used from the USPTO patent dataset. We hire a research assistant, Irene Iodice, that collected all data. Since this data is confidential, we can only work through the box that is located in the MSE’s office and thereby, we were not able to access since mid-March 2020 due to the lockdown, COVID crisis and in this context the MSE is closed.

Working package 4, which is entitled “Informal Employment and Trade Liberalization” ,is a join work between Maria Bas (Université Paris 1) and Pamela Bombarda (Université de Cergy). We started in January 2019 collecting data on informal employment in Mexico and identifying a new and original topic relative to the existent literature. Next, we define the econometric implementation and start the baseline estimations. We looked at the effects of output, input and export tariffs in Mexico on labor allocation from informal to formal sector.

Finally working package 5 also relies on French firm level data that is confidential. It will start in September 2020 if we can access the MSE and the data that is located in the box.

During the first 18 months, we have completed two working packages (number 2 and 3) from the five in the ANR MOQAT and we have two papers under revision (revised and resubmitted) in top international journals (rank 1 CNRS) as the European Economic Review and Journal of Development Economics.

Trade liberalization was at the core of structural reforms in the last decades. A lot of attention has been paid recently to the microeconomic effects of trade openness on firms’ competitiveness and labor markets. On the production side, recent works (Verhoogen, 2008, Khandelwal, 2010) highlight alternative strategies to price competitiveness to improve firm efficiency in a globalized world: firms can increase their market shares abroad by upgrading the quality of their products (non-price competitiveness). Our recent work shows that trade liberalization creates incentives for firms to upgrade the quality of foreign inputs to improve the quality of exported final goods (Bas and Strauss-Kahn, 2015). On the labor market, the literature has shown that trade shocks induce large labor market adjustments that have important distributional consequences (Autor et al. 2013).

This research program proposes several projects to understand the mechanisms at play. Conducting micro econometric analysis theoretically grounded using detailed firm-product data for several countries, this research program explores the heterogeneous effects of international trade on firm performance, quality upgrading and employment demand. The first two projects focus on the role of product quality on final prices and demand, on the one hand, and on the impact of input quality upgrading on product innovation and employment of different skills, on the other hand. The two other projects look at the relationship between firms’ exposure to international markets and different domestic labor market outcomes such as volatility of workers of different skills and gender differences in occupational status. The last project investigates the impact of resource misallocation on external competitiveness and asks whether firms optimizing their use of labor compete more successfully in international markets.

The main contribution of this research program to the literature is to look at the different ways in which firms can enhance their non-price competitiveness in a globalized world and its effects on labor demand. The research projects proposed are innovative in several ways. First, all projects share one common ambition: they aim at identifying the causal relationship between international trade, firm performance and labor market outcomes relying on very detailed micro-data (at the firm-product and country level) and original econometric identification strategies based on variations of exogenous trade shocks. Second, the empirical analysis is always theoretically guided. All projects proposed a theoretical framework that rationalizes the mechanisms at play and the theoretical implications that will be tested. Third, the research topics of each project are novel and original and aim at contributing to the literature in several ways: (i) there is no evidence on the heterogeneous impact of tariff cuts on export prices depending on product quality at the micro level, (ii) there is no work that has explored the relationship between firms’ foreign input-quality upgrading and skilled bias technical change, (iii) there is a lack of evidence on the impact of firms’ export exposure on the employment volatility across workers of different skill, (iv) little is known about the impact of trade liberalization on informal employment depending on gender and occupations and (v) there is little micro-level evidence on the relationship between firm heterogeneity, external competitiveness and misallocation of resources within the firm.

This research agenda does not lack of policy implications. By exploring the heterogeneous effects of trade openness on firms’ decisions to innovate, upgrade their quality and on changes in employment demand and in occupational status of different types of workers, this research program aims to identifying the firms and workers that win and lose from globalization. Leaving room for industrial, labor market and social policies to complement trade policies.