Trade Liberalization and Labor Monopsony: Evidence from Chinese Firms
HKUST IEMS Working Papers No. 84
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Highlights
- After joining the WTO, labor markdowns fell more in labor markets exposed to larger input tariff reductions.
- This relative decline in labor markdowns is more pronounced for skill-intensive firms compared with non-skill-intensive firms.
- Firms that have a large skilled labor market share also see their markdowns decrease more in regions with large contemporaneous college expansion reforms.
- Lower labor markdowns due to input trade liberalization offset China’s aggregate labor share decline by almost one-half percentage point in the early 2000s.
Abstract
We document that larger input tariff reductions were associated with lower labor markdowns in China, especially for skill-intensive firms. Guided by a stylized model of equilibrium labor market power, we leverage differences in the aggregate labor supply dynamics across labor markets—such as regional variations in China’s contemporaneous college expansion reforms—to that show trade-induced labor markdown decreased more in labor markets with more labor supply growth. Our estimates suggest that lower labor markdowns due to input trade liberalization offset China’s aggregate labor share decline by almost one-half percentage point in the early 2000s.
Authors
Illenin O. Kondo, Yao Amber Li, Wei Qian
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