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Title: Labor-Market Frictions and Endogenous Production-Network Formation

Citation Type: Miscellaneous

Publication Year: 2019

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Abstract: This paper studies the interaction of labor-market frictions and endogenous production-network formation in firms’ decisions on employment, sourcing and production, within the context of trade policy. I construct a quantitative general-equilibrium model featuring worker-firm and firm-to-firm matching in the production process. I calibrate the model and investigate how trade policy and labor-market efficiency affect production-network density, trade flows, unemployment and wage inequality. The model shows a 1.5% decrease in relative labor-market frictions in one country can lead to a 0.1% decrease in the partner country’s relative number of downstream production-network linkages. I explore how heterogeneity in firm-to-firm matching costs determines the effect of a trade shock on wage inequality. I show that a protectionist tariff by one country leads to increases in domestic long-run unemployment and real wages. Examining these channels separately leads to sizable quantitative and qualitative changes in the predicted outcomes of trade policy

Url: https://jacobhowardecon.github.io/docs/Howard_matching.pdf

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Authors: Howard, Jacob

Publisher: University of Boulder

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

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