Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246049 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021:13
Publisher: 
Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala
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.
Subjects: 
Labor Share
Competition
International Trade
Welfare
JEL: 
E25
L11
F10
Document Type: 
Working Paper

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