The Impact of Trade Liberalization on Firms' Product and Labor Market Power

Sabien Dobbelaere and Quint Wiersma
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Quint Wiersma: Vrije Universiteit Amsterdam

No 12951, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the impact of trade liberalization on firms' product and labor market power. We estimate the prevalence and intensity of firm-level price-cost markups and either wage markups or wage markdowns. We take the dependence between these model-consistent measures of product and labor market power explicitly into account. To identify the effect of trade shocks on product and labor market power, we exploit China's reductions in input and output tariffs upon its accession to the World Trade Organization. We find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing tariffs on intermediate inputs has increased a firm's price-cost markup but decreased the degree of wage-setting power that it possesses, conditional on exercising product/labor market power. Finally, we find heterogeneous effects of trade liberalization on the intensity of firms' product and labor market power, giving insights into the true consequences of trade shocks.

Keywords: trade liberalization; wage markdowns; wage markups; price-cost markups; tariffs (search for similar items in EconPapers)
JEL-codes: F14 F16 L11 P31 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2020-01
New Economics Papers: this item is included in nep-cna, nep-com, nep-int, nep-lma and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published online in: Industrial and Corporate Change , 31 July 2024

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