Globalization and imperfect labor market sorting

Abstract

This paper focuses on the ability of the labor market to correctly match heterogeneous workers to jobs within a given industry and the role that globalization plays in that process. Using matched worker-firm data from Sweden, we find strong evidence that openness improves the matching between workers and firms in industries with greater comparative advantage. This suggests that there may be significant gains from globalization that have not been identified in the past -globalization may improve the efficiency of the matching process in the labor market. These results remain unchanged after adding controls for technical change at the industry level or measures of domestic anti-competitive regulations and product market competition. Our results are also robust to alternative measures of the degree of matching, openness, or the trade status of an industry. JEL: F14, F16, J20Keywords: Matching, Globalization, Firms, Workers, Multinational Enterprises, International Trade * Michigan State University; + The Research Institute of Industrial Economics, Sweden, ¤ Lund UniversityWe are indebted to Sergio Firpo, Steven Haider, Runjuan Liu, Erik Mellander, Marc Muendler, Gary Solon, Richard Upward and Jeff Wooldridge for helpful discussions. We have also benefitted from the feedback provided by seminar and conference participants at a variety of locations and conferences.

Correlation bias correction in two‐way fixed‐effects linear regression

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