Trade Policy and Labor Market Power in China


We propose an analysis of the impact of trade policy on labour market power in China. Our preliminary regression analysis show that the tariff reductions reduced labor market monopsony. We will explore further the mechanisms for the falling markdown in response to trade liberalization, and the role of the elasticity of labour supply. First, we will test whether the reductions in markdowns is concentrated in regions with a high influx of migrant labour. Second, we will explore whether this effect is heterogeneous among firms with different skills intensity. Third, we will test whether the regions with more college expansion alleviated the shortage of skilled labour supply and weakened the aforementioned labor market consequences. Moreover, we will build a simple model to uncover the underlying mechanisms and to quantify general equilibrium impact of the liberalication on labour’s share in the manufacturing through both the markup and markdown channels.

Principal Investigator (PI):  Amber Yao Li, Department of Economics

This project is funded by the HKUST IEMS Research Grants 2021.

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