Abstract
Recent advances in theoretical and empirical trade literature on heterogeneous firms confirm that regulatory (fixed) costs can prevent firms with low-productivity levels from producing and exporting. Majority of firms struggle to survive particularly in industries where these costs are high,potentially leading to substantial effects on the labor market. This paper investigates the effect of reductions in fixed costs on the US labor market based on a firm-heterogeneity extension of the Global Trade Analysis Project (GTAP-HET), Computable General Equilibrium (CGE) model, where the US labor data are expanded to 22 occupations. This extension enriches the labor market analysis and provides an avenue to investigate the factors determining fixed costs. Particularly, we distinguish between the labor types that are employed to cover fixed costs as opposed to those that cover variable costs.
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