JOSE P. VASQUEZ
Abstract: This paper estimates the effects of foreign multinational corporations (MNCs) on workers. To that end, we combine microdata on all worker-firm and firm-firm relationships in Costa Rica with an instrumental variable strategy that exploits shocks to the size of MNCs in the country. First, using a within-worker event-study design, we find a direct MNC wage premium of nine percent. This premium reflects above market wages rather than compensation for disamenities. Next, we study the indirect effects of MNCs on workers in domestic firms. As MNCs bring jobs that pay a premium, they can improve the outside options of workers by altering both the level and composition of labor demand. MNCs can also enhance the performance of domestic employers through firm-level input-output linkages. Shocks to firm performance may then pass through to wages. We show that the growth rate of annual earnings of a worker experiencing a one standard deviation increase in either her labor market or firm-level exposure to MNCs is one percentage point higher than that of an identical worker with no change in either MNC exposure. Finally, we develop a model to rationalize the reduced-form evidence and estimate structural parameters that govern wage setting in domestic firms. We model MNCs as paying a wage premium and buying inputs from domestic firms. To hire new workers, domestic firms need to incur recruitment and training costs. Model-based estimates reveal that workers in domestic firms are sensitive to improvements in outside options. Moreover, the marginal recruitment and training cost of the average domestic firm is estimated at 90% of the annual earnings of a worker earning the competitive market wage. This high cost allows incumbent workers to extract part of the increase in firm rents coming from intensified linkages with MNCs.
Revise and Resubmit at the Quarterly Journal of Economics.
Abstract: This paper investigates the effects of becoming a supplier to multinational corporations (MNCs) using administrative data tracking all firm-to-firm transactions in Costa Rica. Event-study estimates reveal that after starting to supply to MNCs, domestic firms experience strong and persistent improvements in performance, including the expansion of their workforce by 26% and gains in standard measures of total factor productivity (TFP) of 6-9% four years after. Moreover, the sales of domestic firms to buyers other than the first MNC buyer grow by 20%, both through a larger number of buyers and larger sales per buyer. We propose a simple model by which TFP and reputation affect the number of buyers, but TFP alone affects sales conditional on buying. We find a model-based increase in TFP of 3% four years after. Finally, we collect survey data from managers in both domestic firms and MNCs for further insights on mechanisms. Our surveys suggest that becoming suppliers to MNCs is transformative for domestic firms, with changes ranging from new managerial practices to better reputation.
Abstract: There is a growing empirical consensus suggesting that sector-specific productivity increases in a foreign country can have important unemployment and nonemployment effects across the different regions of a domestic economy. Such employment changes cannot be explained by the workhorse quantitative trade model since it assumes full employment and a perfectly inelastic labor supply curve. In this paper we show how adding downward nominal wage rigidity and home employment allows the quantitative trade model to generate changes in unemployment and nonemployment that match those uncovered by the empirical literature studying the "China Shock.'' We also compare the associated welfare effects predicted by this model with those in the model without unemployment. We find that the China Shock leads to welfare increases in most states of the U.S., including many that experience unemployment during the transition. On average across U.S. states, nominal rigidities reduce the gains from the China Shock from 36 to 30 basis points.
(Mis)matching to Good Suppliers: Evidence from Transactions Microdata [Draft available upon request]
Abstract: Using administrative data for the universe of firm-to-firm transactions in Costa Rica, we study the role and prevalence of "good suppliers'', defined as those upstream firms that provide better, more valuable inputs to their downstream buyers. We then investigate the frictions that might prevent buyers from matching with good suppliers and thus become more productive. Our analysis proceeds in three phases. First, we adapt standard machine learning techniques to the estimation of production functions with many inputs in order to identify the good suppliers in the economy. Next, we quantify the frictions that may preclude buyers from matching with the good suppliers. We do so by empirically estimating a production network formation model through a conditional likelihood approach specifically suited to this problem. Finally, we perform economy-wide counterfactual simulations of industrial policies aimed at supporting good suppliers. The objective of this paper is to study matching distortions in input markets as a microeconomic origin of misallocation in developing economies and to suggest adequate policy responses.
Research Paper of the Central Bank of Costa Rica, Nr. 002/2018.
The Evolution of Labor Earnings and Inequality in Costa Rica: Micro-Level Evidence [Draft available soon]
Research Paper of the Central Bank of Costa Rica, 2019.