International economic integration has increased over the last decades, in Sweden as well as in other countries, which has consequences for labor markets and will affect wages, employment and job turnover. The goal of this project was to examine how globalization affects labor market outcomes. The project used a new theoretical framework with heterogeneous firms and heterogeneous workers which provide sharp empirical predictions on labor market consequences of increased international integration. Our empirical work used a large Swedish data set on workers that is linked with data on firms and plants. The linked employer-employee data include detailed information on about 2 million workers annually and all Swedish firms over the period 1996-2013. The project was carried out by two Swedish researchers in close collaboration with researchers in international economics at the Michigan State University.

One part of our project examined how the increased global engagement of firms affects the structure of the workforce. We have shown that the overall distribution of occupations in Sweden has become more skilled intensive over time. There are more people working in relatively skilled occupations today than in the 1990s. The increasingly skilled distribution is not, however, caused by a decline in the lowest skilled occupations. On the contrary, both the lowest and the highest skilled occupations have increased their employment shares, although the increase for the latter group is the largest.

The share of medium skilled occupations has declined, which altogether has led to an increased job- polarization. We continued by then examining the role of globalization in changing the distribution of occupations. We have found that globalized firms have a more skilled distribution of occupations than less globalized firms. More precisely, multinational firms have a more skilled distribution than firms that only sell their products on the local market. Exporting firms have a distribution which is less skilled than in multinational firms but more skilled than in local firms.

Another part of the project examined how globalization affects the career path of workers. Most workers land their first full-time job in their 20s and then spend 40 to 50 years in the labor market trying to earn a living. Over their careers, workers acquire new skills, which enables them to change jobs and (sometimes) occupations in order to increase job satisfaction and career earnings. It follows that a complete picture of the impact of globalization on a typical worker should take into account its impact on skill acquisition and the rate at which workers are able to secure better jobs (that is, economic mobility). We have provided a framework to investigate such issues. In particular, we have developed a model of a jobs ladder in which workers gain skills on the job that qualify them for higher-paying jobs at more productive firms. Our main finding is that globalization increases economic mobility through two channels. First, the reduction in trade costs leads to more international engagement by firms. As the number of exporting firms grows, the ability of workers to gain skills that reduce trade costs is enhanced. This makes it easier for workers to qualify for jobs at the top of the jobs ladder. Second, since high-productivity firms gain disproportionally from falling trade costs, globalization increases wage inequality. And, as the gaps between the wages paid by different groups of firms increase, workers become more willing to (a) incur the moving costs associated with changing jobs and (b) expend effort to keep their skills from deteriorating. As a result, upward economic mobility rises and downward economic mobility (due to demotions or terminations) falls. These changes in economic mobility reduce the differences in expected lifetime incomes forecast by workers in high-wage and low-wage jobs, resulting in the possibility that inequality in lifetime incomes might fall with globalization (even though wage inequality is rising). Even the case in which globalization increases inequality in terms of lifetime incomes, the impact is smaller than its impact on wage inequality. Thus, our model yields several potentially important predictions that deserve detailed empirical scrutiny. Empirical findings using data on recruitments and job mobility in Sweden support the key assumptions of our model and some of its predictions concerning the link between globalization and economic mobility for certain occupations.

Finally, we note that recent empirical work has found shrinking employment in middle-wage occupations in favor of employment gains in both low-wage and high-wage occupations. This job polarization has been largely linked with offshoring. Complementary with this work, our results indicate that globalization can result in a shrinking middle-class even within a given occupation and even without offshoring. In particular, the labor market in our model consists of workers in a single occupation and we model globalization as a reduction in trade costs. In this context, we show that globalization alters the networks that firms use to fill their vacancies and that this reduces the number of jobs that pay midlevel wages. This is because expanded export opportunities increase the incentives for the strongest firms to recruit the most experienced workers by paying the high wages; while more intense import competition causes weak firms to re-orient their hiring toward inexperienced low-wage workers.