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

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 r..