The Effect of Foreign Competition on UK Firm Level Employment: Theory and
Evidence
JEL Classification F00, L00 and J00
Jozef Konings
Patrick P. Walsh
Katholieke Universiteit Leuven, LICOS, Blijde Inkomststrsst 5, 300 Leuven,
Belgium and Department of Economics, Trinity College Dublin, Ireland.
Abstract
In this paper we investigate the effect of increased foreign
competition on home employment. The interaction of both product and
labour market responses to foreign competition will be of key importance to
understanding the impact of foreign competition on domestic employment. In a
simple theoretical framework, we introduce both labour and product market
assymmetries between home and foreign firms in an industry and show how these
play a central role in the responses of home firms to increased foreign
competition. We test the predictions of our theory using UK firm level panel
data over the period 1982 to 1989 and find empirical evidence that supports our
theoretical framework.
Acknowledgements
The authors are both members of the European Bureau of
Economic Research. We thank Mike Harrison and Eric Strobl for useful comments on
earlier versions of the paper. The paper was presented at the University of
Leuven, University of Antwerp and Trinity College Dublin. We thank all
participants for their comments. Special thanks go to Paul Gregg for providing
us with the data.