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Trade reform, oligopsony, and labor market distortion: Theory and evidence

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  • Pham, Hoang

Abstract

In a heterogeneous-firm model with oligopsonistic local labor markets, this paper shows that opening up to trade can affect distortion in such markets. The distortion arises because firms are large and able to exercise market power over their local workers. Using a panel dataset of Chinese manufacturing firms from 1998 to 2007, I measure firm-level labor market distortion and examine their evolution following China's trade policy reform in 2001. I find that labor market distortion is pervasive and the trade policy reform has led to a net reduction of the distortion in China's manufacturing sector, with a larger and significant effect working through the liberalization of input tariffs.

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  • Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:inecon:v:144:y:2023:i:c:s0022199623000739
    DOI: 10.1016/j.jinteco.2023.103787
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    More about this item

    Keywords

    International trade; Labor market; Oligopsony; Productivity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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