More on the Melitz effect. Using the calculations in the previous problem, you can do an exercise similar in spirit to Trefler (2004). Calculate labor productivity for each firm (once again, output per worker) before and after trade. (Ignore the firms that drop out of the market when trade opens.) Compute the growth rate of labor productivity for each firm, as a percentage (100 times the change in productivity, divided by the initial value).
(a) For how many firms does labor productivity go down? Why does it go down for these firms? For how many does it go up? Why does it go up for these firms?
(b) Now, take the average across firms of the growth rate of labor productivity. Is average productivity growth positive or negative?
(c) Compare your result to the effect on industry productivity computed in the previous problem. Does average firm productivity move in the same direction as industry productivity? If not, then why not?