Employment Dynamics and Import Competition

This paper develops a new way to quantify the effects of import competition on intra-industry patterns of job creation and destruction. It is based on an industrial evolution model with imperfectly competitive product markets, heterogeneous firms, and endogenous entry and exit. First, Colombian panel data on metal product producers are used to identify the model's parameters, including the sunk start-up costs faced by new firms, the stochastic process that governs firms' idiosyncratic productivity shocks, and the hiring and firing costs associated with changing employment levels. Then several counterfactual trade policy experiments are conducted. In addition to quantifying the effects of openness on job turnover patterns, the model delivers predictions on the associated changes in labor productivity, the nature of the transition process when openness changes, and the role of hiring and firing costs in shaping firms' responses