Sticky Feet: How Labor Market Frictions Shape the Impact of International Trade on Jobs and Wages by Claire H. Hollweg Daniel Lederman Diego Rojas Elizabeth Ruppert Bulmer

Author:Claire H. Hollweg, Daniel Lederman, Diego Rojas, Elizabeth Ruppert Bulmer
Language: eng
Format: epub
Publisher: The World Bank

The mobility costs of entering an industry may rise with respect to the amount of “specific” skills necessary for employment in that industry. Industries with the lowest entry costs for formal workers seem to be consistent with those requiring general rather than specific skills (e.g., construction, services, and retail and wholesale trade) and thus are more accessible. Industries with the highest entry costs, by contrast, namely formal-sector agriculture, transportation/communications, and utilities, may require more specialized skills. (While informal agricultural employment is not likely to require specific skills, to be employed as a formal agricultural worker in Mexico is likely to be skill-intensive, because these workers include, for example, engineers and managers. The costs to entering informal agricultural employment are in fact low, as illustrated below.) The data needed to test the correlation with skill level are lacking.

Note that the level of industry classification affects the magnitude of the estimates. This is a crucial methodological issue that needs to be taken into account in this type of research. Excessive disaggregation of industry levels can produce counter-intuitive results: the magnitude of labor mobility costs rises when industries are more disaggregated, even though it should be easier to move between two subsectors of manufacturing that use similar skills than to move, for example, between manufacturing and nonmanufacturing sectors.10 But this result is a mechanical byproduct of this measurement approach. The analysis estimates adjustment costs using data on observed worker transitions between industries, so that the magnitude of these flows depends on the degree of industry disaggregation—the greater the disaggregation, the fewer the transitions, the higher the mobility costs.

Before Kaplan, Lederman, and Robertson (2013), there were no careful studies of the robustness of mobility costs across different aggregation levels. For policymakers interested in testing the impact of certain trade shocks, the sector aggregation level selected should correspond to the central issues, namely, whether the costs of moving between different types of manufacturing sectors are more relevant than the costs of moving between agriculture and manufacturing. Wage data in developing countries are also relatively less reliable than data for developed countries. These measurement issues suggest the need for caution in interpreting the precise values of the mobility cost estimates for policy applications.

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