Labor market effects of exporter pricing behavior: Evidence from a developing economy

Despite an extensive literature on exporter pricing behavior, the labor market consequences of exchange rate changes remain relatively under-studied. Using product-level trade data from India, we document incomplete exchange rate pass-through to traded goods prices, suggesting potential adjustments through both output and input markets. Motivated by this, we estimate the effects of currency depreciation on product market power (markup), labor market power (markdown), and overall market power using plant-level data. We find that currency depreciation benefits workers in exporting firms by raising wages toward competitive levels, with stronger effects for managerial than non-managerial workers. Although exporters experience higher markup due to local currency depreciation, a substantial decline in markdown leads to an overall reduction in combined market power. We exploit exogenous exchange rate variations along with historical export shares to address endogeneity concerns. The above findings introduce a novel distributional dimension to the exchange rate pass-through literature.