Market Power, Globalization and Labor Market Trends

Abstract

This dissertation studies various economic forces that potentially shape the recent labor market trends. In the first chapter, I develop a general equilibrium model which incorporates the job polarization mechanism into monopolistic competition to explore the role of the rising market power on a set of post-2000 US labor market trends, including the stagnation of wage growth, the slowdown of wage polarization, the decline of aggregate labor share and the distinct labor share trends across routine and non-routine occupations. Comparative static analysis suggests rising market power qualitatively contributes to these trends. The calibrated model can quantitatively account for the trends with the magnitude of increase in markups close to the higher end of range in the literature. Empirically, I find that increases in industry concentration are associated with declines in aggregate labor share, declines in labor share across non-routine and routine occupations, and stagnation of growth in wages per efficiency unit of labor across both occupational groups. In the second chapter, I employ a dynamic general equilibrium model with two types of labor to jointly assess the effects of consumption tariff reduction, materials tariff reduction and financial liberalization on the skill premium, based on the calibration to a generic debtor economy. The simulation results highlight the sharply contrasting effects from these various forms of globalization and the diverse mechanisms involved as the economy adjusts over time. In particular, while both forms of the tariffs reduction reduces the skill premium upon impact, the reduction in materials tariff increases the skill premium over time whereas the reduction in consumption tariff further reduces the skill premium along the transitional path due to their opposing effects on the growth of capital stock. In contrast, financial liberalization increases the skill premium on impact while the transitional dynamics of the skill premium later on exhibits a hump-shaped evolution driven by the two countervailing forces of growing capital stock and rising skilled labor supply. The third chapter contains several extensions to the second chapter, which includes dissecting the mechanisms driving the dynamics of the skill premium, an extensive sensitivity analysis on the key structural parameters, considerations of alternative form of production function and the calibration to a creditor economy. Although the qualitative nature of the responses to the two forms of tariffs reduction and financial liberalization in the benchmark model are fairly robust with respect to variations in key structural parameters, the simulation indicate that the impact effect of material tariff reduction changes dramatically if the imported raw materials are more complementary with skilled labor than they are with unskilled labor. It also leads to very different impact effects of the tariffs reduction and long-run effects of financial liberalization if the external financial position of the economy changes from a debtor to a creditor. The results thus call for the considerations into the composition of the imported raw materials and the external financial position of the economy when evaluating the effects of globalization on the skill premium over time.