International trade with labor market imperfections

In this entry, I review recent theoretical and empirical developments at the intersection of international trade and labor market imperfections, with a focus on monopsony and oligopsony. I highlight how firms’ labor market power can shape the distributional and welfare effects of trade. Monopsonistic competition offers tractability but limits the responsiveness of monopsony power, while oligopsony allows for endogenous monopsony at the cost of increased complexity. Empirical studies from China, Brazil, India, and Australia provide robust evidence that trade affects monopsony power and wage inequality. I conclude the entry by identifying key challenges in modeling and estimation, advocating for deeper integration of labor institutions and computational methods into monopsony models.