Date of Award

Spring 1-1-2011

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Robert McNown

Second Advisor

Wolfgang Keller

Third Advisor

Brian Cadena

Abstract

This dissertation investigates the impact of labor market conditions on the selection effect that trade causes. Since the selection effect can affect the labor market outcomes positively, this includes issues pertaining to improve the worker's welfare in the long term. As a result, the main goal of the dissertation is to investigate which labor market conditions can boost the aggregate total factor productivity as the economy is more open to trade. In the first chapter, I examine when trade could cause the selection effect. If the increased average real wage induced by trade triggers the selection effect (Melitz, 2003), the main issue is to determine the labor market conditions under which trade raises the average real wage. According to the results of regressions of the average and 10th percentile of residual wages, this paper shows that with high union density, low job destruction, and low job creation, the effect of trade on the average residual wage is likely to be negative because the impact of imports exceeds that of exports. Moreover, the impact of trade on the average wage must work through the residual wage because this study does not find any significant impact of trade on average predicted wage. As a result, the more rigid the labor market is, the less likely trade is to raise the average industrial wage and the less likely the selection effect in Melitz (2003) is to occur. In the second chapter, based on the results from the first chapter, I examines whether job flows can improve the aggregate total factor productivity by using U.S. industry data set. In the third chapter, it investigates how rigidity in labor market institutions influences the selection effect as the economy is more open to trade. Findings from dynamic ordinary least square (DOLS) suggest that higher labor market rigidity in an open economy reduces the TFP through the negative selection effect. In particular, in extremely high rigidity but low foreign R&D stock, the openness to trade could cause the country to experience decreasing TFP because the negative selection effect can offset the international R&D spillover effect.

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