Description:
This paper examines the impact of trade liberalization on firms’ product and labor market power. We estimate the prevalence and intensity of price-cost markups and either wage markups or wage markdowns, taking the dependence between these model-consistent measures of product and labor market power into account. Exploiting reductions in tariffs upon China’s WTO accession, we find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing input tariffs has increased firms’ price-cost markups but decreased their wage-setting power. We reveal hetero-geneous trade liberalization effects on the intensity of firms’ product and labor market power