Extensive and Intensive Margins of Exports and Labor Heterogeneity

Abstract

This paper investigates how changes in skilled and unskilled labor supply affect different margins of exports. Using bilateral trade data in manufacturing sectors of 34 countries from 1995 to 2010, we find that most of the impact of skilled labor on exports goes through the intensive margin, whereas most of the effect of unskilled labor works through the extensive margin. These outcomes result from the impact of labor skill composition on the productivity cut-off of exporters. We also find that the impact of skilled and unskilled labor on trade margins depends on the income level of countries and on the type of products. The results indicate that the effect of skilled labor is greater for low-income countries and differentiated products, while that of unskilled labor is greater for high-income countries and homogeneous products.