Events

Dr. Mayara Felix
Postdoctoral Fellow
International Economics Section
Princeton University

Growing evidence suggests that trade liberalization has large negative effects on wages in labor markets more exposed to import competition. Why? I study one potential mechanism: increased firm labor market power. I develop an imperfectly competitive model of labor markets whereby the effect of trade on a market’s average wage markdown can be quantified by two sufficient statistics: the effect of trade on labor market concentration, and the gap between workers’ cross-market vs. within-market cross-firm inverse elasticities of substitution. I then use employer-employee linked data and Brazil’s 1990s trade liberalization to estimate these key sufficient statistics. I highlight three findings. First, firms had substantial market power before liberalization: workers took home only 50 cents of every marginal dollar they generated. Second, trade increased labor market concentration, an effect driven by employment reallocation to higher-paying exporting firms. Third, this increased concentration raised firm labor market power, and the consequent reduction in wages offset all wage gains from the reallocation to higher-paying firms. However, the magnitude of this market power effect was small, accounting for only 2% of the overall negative effect of trade on wages. The overall effect was instead driven by within-firm reductions in the marginal revenue product of labor.

This is a joint seminar organized by HKU, CUHK, City U, HKUST and Lingnan U.

Please contact Xiameng PAN at xmpan@connect.hku.hk for registration.