Decomposing the exporter wage gap: Selection or differential returns?

We show that the exporter wage gap is driven by workers sorting on comparative advantage rather than firm selection. We start out with an AKM-style wage equation with worker, firm, and residual “match” fixed effects. We show that allowing worker and firm effects to depend on the export status of the firm changes how the exporter wage gap is decomposed. Our results suggest that workers in exporting firms have unobserved traits that are particularly valuable in exporting, resulting in higher wages for workers in those firms. Further, we show that workers make job transitions based on their differential returns. Thus, the exporter wage gap results from workers self-selecting into exporting and non-exporting firms based on their comparative advantage. Finally, we show that the conclusion is robust to relaxing the linearity assumptions of the AKM-style framework. • Exporters Pay Higher Wages : Exporting firms generally pay higher wages than non-exporting firms. • Decomposition of Wage Gap : Worker effects are important drivers of the gap. • Comparative Advantage : Workers in exporting firms have skills that exporting firms reward. • Worker Sorting : Mobility and self-selection into exporting firms drive wage disparity. • Importance of Worker Heterogeneity : Worker differences matter – trade models should acknowledge this.