The impact of trade liberalization on firms' product and labor market power

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 World Trade Organization accession, we find that trade liberalization has not switched firms away from exercising product and labor market power. Reducing input tariffs has widened price-cost markups, narrowed wage markdowns, and widened wage markups at the firm level. We reveal heterogeneous trade liberalization effects on the intensity of firms' product and labor market power.