Trade liberalization and labor's slice of the pie: Evidence from Indian firms

Reshad N. Ahsan, Devashish Mitra

Research output: Contribution to journalArticle

17 Scopus citations

Abstract

We examine the impact of trade reforms initiated in 1991 on labor's share in revenue among a sample of Indian firms. Theoretically, trade reforms will affect this share by reducing firm-level price-cost markups as well as the bargaining power of workers. A simple model suggests that these changes can have ambiguous effects on firm-level labor share and that the net effect of trade reforms will depend on the labor intensity of production. Using firm-level data from India, our empirical results suggest that trade liberalization led to an increase in labor's share in revenue for small, labor-intensive firms but a reduction in this share in the case of larger, less labor-intensive firms. These results are robust to controlling for alternative sources of heterogeneity and to the use of long-lagged tariffs as instruments. We also find that trade liberalization, on average, led to a decline in the bargaining power of workers.

Original languageEnglish (US)
Pages (from-to)1-16
Number of pages16
JournalJournal of Development Economics
Volume108
DOIs
StatePublished - May 1 2014

Keywords

  • Bargaining power of workers
  • Firm-level data
  • India
  • Labor share
  • Markups
  • Trade reforms

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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