Training and Labor Adjustment to Trade

Abstract This paper studies how the labor market frictions of skilled workers affect corporate valuation. The analysis features immigrant workers’ mobility constraints imposed by the U.S. green card application process and exploits exogenous variations caused by imperfections in the current immigration system. The study finds that relaxing mobility constraints negatively influences firm value. This effect is stronger for firms with higher labor adjustment costs. Reductions in investments and increases in labor costs are channels through which labor mobility adversely affects firm value. The findings suggest that monopoly rent over skilled workers is an important economic determinant of corporate valuation.

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The dynamics of investment and employment with capital and labor adjustment costs* *Originally published as “Dynamique de l'investissement et de l'emploi avec coûts d'ajustement sur le capital et le travail,” Annales d'Economie et de Statistique (formerly Annales de l'INSEE) 2:75–100, Apr.-June 1986.

Contributions to Economic Analysis - Investment and Factor Demand ◽

10.1016/b978-0-444-88105-2.50012-6 ◽

1990 ◽

pp. 145-174

Author(s):

Patrick Artus ◽

Bernard Migus

Keyword(s):

Adjustment Costs ◽

Labor Adjustment Costs ◽

Labor Adjustment

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A Comment on the Economics of Labor Adjustment: Mind the Gap: Evidence from a Monte Carlo Experiment

The American Economic Review ◽

10.1257/aer.99.5.2258 ◽

2009 ◽

Vol 99 (5) ◽

pp. 2258-2266 ◽

Cited By ~ 3

Author(s):

Christian Bayer

Keyword(s):

Cost Model ◽

Simulated Data ◽

Adjustment Costs ◽

Adjustment Cost ◽

Monte Carlo Experiment ◽

Dynamic Adjustment ◽

Employment Decisions ◽

Firm Level ◽

Labor Adjustment ◽

Productivity Process

This comment addresses a point raised in Russell Cooper and Jonathan Willis (2003, 2004), which discusses whether the “gap approach” is appropriate to describe the adjustment of production factors. They show that this approach to labor adjustment as applied in Ricardo J. Caballero, Eduardo Engel, and John C. Haltiwanger (1997) and Caballero and Engel (1993) can falsely generate evidence in favor of nonconvex adjustment costs, even if costs are quadratic. Simulating a dynamic model of firm-level employment decisions with quadratic adjustment costs and estimating a gap model from the simulated data, they identify two factors producing this spurious evidence: approximating dynamic adjustment targets by static ones, and estimating the static targets themselves. This comment reassesses whether the first factor indeed leads to spurious evidence in favor of fixed adjustment costs. We show that the numerical approximation of the productivity process is pivotal for Cooper and Willis's finding. With more precise approximations of the productivity process, it becomes rare to falsely reject the quadratic adjustment cost model due to the approximation of dynamic targets by static ones. (JEL E24, J3)

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