This paper studies the link between volatility, labor market flexibility, and international trade. International differences in labor market regulations affect how firms can adjust to idiosyncratic shocks. These institutional differences interact with sector specific differences in volatility...

We extend the theoretical framework in Cuñat and Melitz (2007) to a many-country setup where countries exhibit different degrees of labor market fexibility. We rely on the insights from a recent paper by Costinot (2009) to obtain precise predictions about comparative advantage in this setting:...