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Saving good jobs from global competition by rewarding quality and efforts

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  • Wang, Yongjin
  • Zhao, Laixun

Abstract

This paper links firms' endogenous quality choices to worker effort and efficiency wages. In the model, firms differ in their ability to monitor workers who have an incentive to shirk. As high quality output requires high worker effort, it is firms with better monitoring ability that upgrade their quality. Indeed, these firms upgrade their quality to such a degree that they also end up paying higher wages to induce even more worker effort. Trade liberalization can induce greater or smaller wage inequality but always enlarges the welfare inequality as higher wages go hand in hand with even greater effort.

Suggested Citation

  • Wang, Yongjin & Zhao, Laixun, 2015. "Saving good jobs from global competition by rewarding quality and efforts," Journal of International Economics, Elsevier, vol. 96(2), pages 426-434.
    • Handle: RePEc:eee:inecon:v:96:y:2015:i:2:p:426-434
    DOI: 10.1016/j.jinteco.2015.03.005
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    More about this item

    Keywords

    Trade liberalization; Inequality; Efficiency wages; Unemployment;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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