American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony
American Economic Review
(pp. 4328–68)
Abstract
We quantify the firm responses and real wage effects of foreign demand shocks. We use Belgian microdata to construct firm-specific measures of demand shocks, which capture that firms pass on foreign demand shocks to domestic suppliers. Our estimates of firm responses to these shocks suggest that firms face upward-sloping labor supply curves and have sizable fixed labor costs. We specify a general equilibrium model with these features to quantify the aggregate effects of simulated tariff shocks on wages. We find that ignoring fixed labor costs substantially underestimates aggregate effects on wages, whereas incorporating upward-sloping labor supply appears less consequential.Citation
Dhyne, Emmanuel, Ayumu Ken Kikkawa, Toshiaki Komatsu, Magne Mogstad, and Felix Tintelnot. 2025. "Firm Responses and Wage Effects of Foreign Demand Shocks with Fixed Labor Costs and Monopsony." American Economic Review 115 (12): 4328–68. DOI: 10.1257/aer.20220948Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- F13 Trade Policy; International Trade Organizations
- F16 Trade and Labor Market Interactions
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials
- J42 Monopsony; Segmented Labor Markets
- L25 Firm Performance: Size, Diversification, and Scope