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This study employs industry-level panel data to estimate the effects of import competition on the labor productivity of Swedish manufacturing during 1998–2008 and to determine how this relationship is affected by the price-cost margin. The study results show that the import competition effect on labor productivity is positive, whereas the labor productivity of firms with higher price-cost margin is relatively less affected by import competition. Specifically, imports from high-income countries have significant positive effects on labor productivity, whereas those from middle-income countries have weak negative effects. No explicit relationship was found in the case of low-income countries. Domestic industries with low price-cost margin and industries confronted with imports from mainly high-income countries raise their labor productivity to deal with unexpected higher imports in the short term.