Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215347 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 12951
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
price-cost markups
wage markups
wage markdowns
trade liberalization
tariffs
JEL: 
F14
F16
L11
P31
Document Type: 
Working Paper

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