Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony

Emmanuel Dhyne, Ayumu Ken Kikkawa, Toshiaki Komatsu, Magne Mogstad and Felix Tintelnot

American Economic Review, 2025, vol. 115, issue 12, 4328-68

Abstract: We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of firm responses to these shocks suggest that firms face upward-sloping labor supply curves and have sizable fixed labor costs. We specify a general equilibrium model with these features to quantify the aggregate effects of simulated tariff shocks on wages. We find that ignoring fixed labor costs substantially underestimates aggregate effects on wages, whereas incorporating upward-sloping labor supply appears less consequential.

JEL-codes: D22 F13 F16 J22 J31 J42 L25 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony (2022)
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DOI: 10.1257/aer.20220948

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