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The Effect of Export Market Access on Labor Market Power: Firm-Level Evidence from Vietnam

Author

Listed:
  • Hoang, Trang

    (Oregon State University)

  • Mitra, Devashish

    (Syracuse University)

  • Pham, Hoang

    (Oregon State University)

Abstract

This paper examines the impact of an export market expansion created by the US-Vietnam Bilateral Trade Agreement (BTA) on competition among manufacturing firms in Vietnam's local labor markets. Using a nonparametric production function approach, we measure distortionary wedges between equilibrium marginal revenue products of labor (MRPL) and wages. We find that the median manufacturing firm pays workers 59% of their MRPL. Following the BTA, which significantly reduced US import tariffs for Vietnamese products, firms in industries exposed more to the tariff reductions saw faster employment growth and faster declines in their MRPL-wage wedge. We find that the BTA permanently decreases labor market distortion in manufacturing by 3.4%, and the effect concentrates on domestic private firms with a magnitude of 4.9%. We exploit information on the gender composition to estimate the MRPL-wage wedges separately for men and women. We find that the median distortion is 26% higher for women relative to men, and the decline in distortion for women, amounting to more than 12%, is the driver of the overall reduction in labor market distortion attributable to the BTA. Our theory and empirics suggest that the entry of FDI firms combined with differential aggregate labor supply elasticities explains these results.

Suggested Citation

  • Hoang, Trang & Mitra, Devashish & Pham, Hoang, 2024. "The Effect of Export Market Access on Labor Market Power: Firm-Level Evidence from Vietnam," IZA Discussion Papers 17196, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17196
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    More about this item

    Keywords

    international trade; export market access; labor market distortion; misallocation; income distribution; labor share; gender inequality; monopsony; oligopsony;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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