Trade Liberalization, Labor Markets and Imperfect Competition


Devashish Mitra

East-West Center Working Papers, Economics Series, No. 29


Honolulu: East-West Center

Publication Date: July 2001
Binding: paper
Pages: 25
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This paper looks at the recent empirical literature on the effects of trade reforms on firm level wages, employment and labor demand elasticities in import-competing sectors. The focus is empirical investigations using frameworks that allow for imperfect competition. Imperfect competition in product markets allows for changes in elasticities and markups through trade reforms and thus brings about additional effects on firm-level employment and wages. Further, there is the theoretical possibility of this change in product demand elasticity leading to a change in firm-level labor demand elasticity. These issues are investigated in Kambhapati, Krishna and Mitra (1997) and Krishna, Mitra and Chinoy (forthcoming). In this paper, I discuss the theory, methodologies and results of both of these papers. Further, I investigate the benefits of bringing in imperfect competition in the labor market into the analysis of the labor market impact of trade reforms and in that context discuss some of the recent literature.