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.

Policymakers, public commentators, and researchers often cite the Nordic countries as examples of a socioeconomic model that combines low income inequality with prosperity and growth. This article critically assesses that claim by integrating theoretical perspectives and empirical evidence to explain how the Nordic model functions and why these countries experience low inequality. Our analysis suggests that income equality in the Nordics is largely driven by a significant compression of hourly wages, reducing returns to labor market skills and education. This appears to result from a wage bargaining system characterized by strong coordination within and across industries. This finding challenges other commonly cited explanations for Nordic income equality, such as redistribution through the tax transfer system, public spending on goods that complement employment, and public policies promoting equal skills and human capital. We consider broader lessons for economies aiming to reduce inequality and conclude by highlighting several under-explored or unresolved questions.

We develop, identify, and estimate a model of imperfect competition in both labor and product markets. Our context is the US construction industry, where firms compete for workers, private market projects, and government procurements. Our empirical approach leverages bidding data from procurement auctions linked to employer-employee tax records. We find imperfect competition in both markets generates a total wage markdown of more than 30 percent and a total price markup of around 45 percent. By contrast, if one erroneously assumed a perfectly competitive product (labor) market, then one would conclude wages (prices) are marked down (up) by only 20 percent (16 percent).