Trade Liberalization and Firms’ Monopsony Power in the Labor Market
Junior Researcher Seminar– December 07, 2023 – 12:15-01:15 – Room 115, MSE
We study the effect of trade liberalization on firms’ monopsony power in the labor market. We measure firm-specific labor market power using markdown from production data in the manufacturing industry and document the trends in China between 1998 and 2007. Taking China’s entry to WTO as a policy shock, we use a difference-in-differences (DID) approach combined with an instrumental variable (IV) strategy to show that tariff reduction relatively decreased labor markdown among firms more exposed to trade shocks. We explain the pattern by constructing shift-share trade shocks to show that export opportunity increases the number of firms, while import competition reduces the number of firms, and the net effect of trade liberalization increases the total number of firms, which is related to lower monopsony power in the local labor market.
Internal Seminar 