Labor-share dynamics -The role of import competition

Charlotte Paulie ()
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Charlotte Paulie: Uppsala University,, Postal: Uppsala University,, Uppsala, Sweden

No 2021:13, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: Does increasing product-market competition from foreign firms affect domestic labor shares? By combining detailed Swedish firm-level data with an instrumental variable design, I show that an increase in import penetration caused by increased global competition results in a decrease in domestic industry-level labor shares. The decrease comes both from a reallocation of firms’ market shares and a fall in labor shares at the firm level. The analysis shows that the negative effect of competition on firm-level labor shares is driven by an increase in productivity that is not met by a corresponding increase in compensation to labor. I use these findings to calibrate a heterogeneous-firm model where domestic and foreign firms compete on the domestic product market. The calibrated model predicts that an increase in foreign competition corresponding to a one standard deviation increase in import penetration results in a 1.12 percentage point increase in welfare.

Keywords: Labor Share; Competition; International Trade; Welfare. (search for similar items in EconPapers)
JEL-codes: E25 F10 L11 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-10-15
New Economics Papers: this item is included in nep-bec, nep-com, nep-int and nep-mac
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