Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/144488 
Year of Publication: 
2015
Series/Report no.: 
NBB Working Paper No. 276
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports.
Subjects: 
unit labor costs
exports
competitiveness
heterogeneity
JEL: 
F1
F4
F16
Document Type: 
Working Paper

Files in This Item:
File
Size
506.8 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.