Competitor entry impact on jobs and wages in incumbent firms: retrospective evidence from a natural experiment

Abstract

This article, situated at the interface of competition policy and labor economics literatures, examines the relationship between new competitor entry and its impact on changes in the employment levels and wage levels of incumbent telecommunications firms. The context for examining the issue is the local exchange carriers’ territories within the US. In markets with above-average competitive entry by new firms there has been a significant response by incumbent firms in increasing employment levels by 11% relative to industry average values, and wage levels have risen by 11.8% relative to average levels. In modern technologically-dynamic sectors, characterized by network effects, the impact of deregulation, competition policy changes and market entry on changes in employment and wage levels in the incumbent firms have been positive. The idea as to whether across-the-board competition leads to job losses or impacts wages negatively in incumbent firms requires re-assessment and the data suggest that promoting entry can be a powerful policy option to generate useful economic outcomes.