American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
International Trade Responses to Labor Market Regulations
American Economic Review
(pp. 3675–3712)
Abstract
This paper demonstrates that labor market regulations, such as minimum wages or payroll taxes, shape trade competition in labor-intensive activities. I exploit data from a large European trade program where firms from different countries supply labor services at the same location but face different payroll taxes and minimum wage rules. Country case studies and model-consistent gravity estimates show large trade responses to tax and regulatory reforms, with an elasticity of trade in services to labor costs larger than one. The results imply that absent regulatory and fiscal harmonization, export competitiveness depends, in part, on domestic labor market policies.Citation
Muñoz, Mathilde. 2025. "International Trade Responses to Labor Market Regulations." American Economic Review 115 (11): 3675–3712. DOI: 10.1257/aer.20231531Additional Materials
JEL Classification
- F14 Empirical Studies of Trade
- F16 Trade and Labor Market Interactions
- F42 International Policy Coordination and Transmission
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- J22 Time Allocation and Labor Supply
- J23 Labor Demand
- K31 Labor Law