سختی های حفاظت از استخدام و صادرات

There have been significant improvements in traditional trade policies in the past few decades. However, these improvements can only be fully effective when they are complemented with a favorable investment climate. This study focuses on a particular aspect of investment climate, namely labor regulations, and shows how these regulations can be discouraging from exporting. Using firm level data from 26 countries in Eastern Europe and Central Asia region, the paper empirically shows that firms that cannot create new jobs due to stringent labor regulations are less likely to export. Firms that plan to export expand their sizes before they start to export. However, the rigidities in labor markets make this adjustment process costly. Higher costs of employment decrease operating profits and lead to a higher productivity threshold level required for entering export markets. As a result, a smaller fraction of firms can afford to export.

Recent research in international trade literature as reviewed by Bernard, Jensen, Redding, and Schott (2007) and Greenaway and Kneller (2007) show that exporting firms are larger, more productive and they grow faster. Higher performance of these firms and their significant contribution to economic development make it imperative to understand how investment climate affects their progress. A sound investment climate can be crucial to complement firm specific, technological, or market driven factors in order to make exporting a profitable activity. In fact, Dollar, Hallward-Driemeier, and Mengistae (2006) show that highly bureaucratic and corrupt governments, inefficient financial services, or low quality of infrastructure make it difficult for firms to expand into foreign markets in developing countries. They argue that a good investment climate works in the direction of decreasing the sunk costs of exporting and eventually leads to higher participation in export markets. Focusing only on the elimination of trade barriers without considering the inefficiencies in investment climate might not yield the expected gains from trade. This study investigates the relationship between a particular aspect of investment climate namely labor regulations and exporting. It shows that firms that find it difficult to create new jobs due to stringent labor regulations are less likely to participate in export markets. Evidence from theoretical and empirical research shows that efficient firms self-select themselves into foreign markets. The entry into these markets is associated with significant changes in firm performance. In the data from Enterprise Surveys employment levels of firms that subsequently enter export markets (future-exporters) grow by 13% which is four times higher than the growth rate of nonexporting firms. 1Bernard and Jensen (1999) who analyze the evolution of future-exporters among the firms in the United States, find that in addition to being larger in employment, shipments, and labor productivity, future-exporters also grow faster than nonexporters in all three measures. They find that growth premiums between future-exporters and nonexporters are 1.4% per year for employment and 2.4% for shipments. Greenaway and Kneller (2007) summarize a collection of studies that similarly find faster total factor productivity or labor productivity growth of future-exporters relative to nonexporters. Alvarez and Lopez (2005) argue how firms increase their productivities with the explicit purpose of becoming exporters. Using data of Chilean manufacturers they show that future-exporters invest more in physical capital than nonexporters. They find that a 1% increase in investment increases the probability of exporting by 0.2%. All these evidences highlight the changes in performances of firms that self-select themselves into export markets before exporting starts. In this study I show that labor regulations can obstruct this self-selection process and discourage firms from exporting. Labor regulations are an important element of investment climate. Studies like Micco and Pages (2007) and Kugler (2007) show that stringent labor regulations hinder job flows in firms by raising the costs of hiring workers. These regulations can also have detrimental effects on exporting. In a recent study, Helpman and Itskhoki (2010) construct a theoretical model that explains how rigidities in labor markets impact trade. In a general equilibrium model of trade with two countries, they show that labor market flexibility is a source of comparative advantage for firms. Frictions in labor markets which cause high hiring costs reduce operating profits. Lower profits decrease the competitiveness of firms and obstruct the self-selection process into foreign markets. I present empirical evidence that supports the theoretical results of Helpman and Itskhoki (2010)2. For the analysis, I use firm level data from Enterprise Surveys which is conducted in Eastern Europe and Central Asia (ECA) region. Using one of the survey questions, for each firm I compute the difference between current employment level and a hypothetical level that would be obtained if labor regulations were not constraining. Then I investigate whether firms that are more severely affected by labor regulations in creating new jobs are less likely to export. The analysis shows that a 1% increase in the severity of labor regulations yields a 0.7% decrease in the probability of exporting. Almost all empirical work that analyzes the effects of labor regulations on firm performance has concentrated on the effects on size, investment, and productivity with no particular focus on exporting. Besley and Burgess (2004) analyze how labor regulations affect firm performance across Indian states. They find that restrictive labor regulations lead to lower investment, employment, and productivity in the formal sector. Bassani and Ernst (2002) and Scarpetta and Tressel (2004) show that innovation activity and productivity are negatively affected by the distortions in institutional environment including labor regulations. Khan (2006) performs a similar analysis in French industries and finds that restrictive labor regulations have negative effects on total factor productivity growth. Almeida and Carneiro (2009) find that in Brazil, stricter enforcement of labor regulations reduce firm size measured in both employment and sales. Caballero, owan, Engel, and Micco (2004) find that job security regulations hamper the process of creative destruction especially in countries where these regulations are likely to be enforced. They show that higher levels of job security decrease productivity growth roughly by 1%. I extend the existing literature on labor regulations by showing how detrimental they can be for export activities. A novel feature of this study is that it does not only look at the cross-country differences in labor regulations but also looks at the variation of their effects across sectors like construction, manufacturing, and retail. Even when the same de jure labor laws are applied across all firms in a country, differences in the intrinsic demand and supply shocks can lead to differential effects of labor regulations across sectors. It is also possible that enforcement of these laws could show variation across sectors or industries which could be a reason for the variation in the distortions caused by labor regulations. Performing a cross-sectoral analysis is also important for the research on international trade. Most of the existing studies analyzing exports focus on export of products in manufacturing sector. Services are the fastest growing sector and the growth in service trade has surpassed the growth in goods trade. Data from Enterprise Surveys show that in both 2002 and 2005 roughly 20% of firms in service sector export part of their services. The analysis is also performed across industries within the manufacturing sector. There are only a few studies like Micco and Pages (2007) and Haltiwanger, Scarpetta, and Schweiger (2008) that perform cross-industry analysis on the differential impacts of labor regulations on firm performance within a country. Both of these studies show that high hiring and firing costs are detrimental to job flows particularly in those industries that require more frequent labor adjustments. The rest of the paper is organized as follows. In Section 2, I explain the methodology and the specification of the model. Then in Section 3, I describe the data used in the analysis. The empirical analysis is presented in Section 4 and a sensitivity analysis using additional controls, different specifications, and the panel data is performed in Section 5. Finally, in Section 6 I present concluding remarks.

A large number of studies have shown that firms that export are better performers than nonexporting firms. These firms employ more workers, grow faster, and they are more productive. They make a significant contribution to aggregate growth and economic development. Dollar et al. (2006) highlight the importance of the investment climate in determining the entry of firms into foreign markets. They show that in addition to technological or market driven factors, factors like finance, infrastructure, and customs services affect a firm’s decision to expand into foreign markets. In this study I focus on another aspect of the investment climate. I analyze how rigid labor regulations can distort the exporting decision. Evidence shows that future exporters start to increase their size before they start to export and they have to be competitive in order to survive in foreign markets. However, stringent labor regulations increase the opportunity cost of hiring workers and lead to lower competitiveness of firms. Although these regulations are established to protect workers and increase aggregate welfare, they can have distortive effects on labor demand of firms. This discouragement in creating jobs can make firms reluctant to enter foreign markets. Most studies that analyze the effects of labor regulations resort to cross country data in institutions and regulations using different data sources which might create problems due to differences in measurement across countries. These problems are ruled out here because the data used are homogeneous in unit of observations, the measures of firm performance, and labor regulations. In my analysis, I use firm level data from ECA region. I look at the variation in the stringency of labor regulations across sectors and show how much of that variation explains the variation in the decision to export. The results show that sectors in which firms want to create more new jobs have lower shares of exporters. The same conclusion is drawn when the analysis is restricted to industries in the manufacturing sector. Next, I show that these findings are not sensitive to inclusion of additional firm level control variables like access to finance, past innovative performance, and the skill level. The results are also not sensitive to the use of alternative measures for labor market rigidities obtained from other questions from the surveys and from Doing Business database. Evidence from the panel data provides further support to the robustness of the findings. There are few studies that analyze the detrimental effects of labor regulations on firm and industry performance. In a recent study, Helpman and Itskhoki (2010) construct a structural model where they show that stringent hiring laws distort exporting decision of firms. They also show that lower the frictions in labor markets the more a country starts to gain from lower trade barriers. Although the link between labor regulations and exporting may not be too obvious, stringent regulations can carry a high cost in the form of negative consequences for job growth which effect entry into export markets.