Trade liberalization and labor monopsony: Evidence from Chinese firms

We document that larger input tariff reductions were associated with lower labor markdowns in China, especially for skill-intensive firms. Guided by a stylized model of equilibrium market power, we leverage differences in the aggregate labor supply dynamics across markets - such as regional variations in China's contemporaneous college expansion reforms - to that show trade-induced labor markdown decreased more in labor markets with labor supply growth. Our estimates suggest that lower labor markdowns due to input liberalization offset China's aggregate labor share decline by almost one-half percentage in the early 2000s.