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Effort, Wages, and the International Division of Labor

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  • Edward E. Leamer

Abstract

This paper embeds variable effort into a traditional multi-sector model. Effort enters a production function like total-factor-productivity and on the assumption that effort doesn't affect capital depreciation, the capital-cost savings from high effort operations are passed on to workers. The labor market thus offers a set of contracts with higher wages compensating for higher effort. Among the implications of the model are: The capital savings from effort are greatest in the capital-intensive sectors where the high-effort high-wage contracts occur; Communities inhabited by industrious workers have high returns to capital and comparative advantage in capital-intensive goods; Capital accumulation in a closed economy causes reductions in effort; Capital accumulation in an open economy creates new high-wage high-effort jobs and higher effort levels; Price declines of labor intensive goods twist the wage-eff offer curve reward for hard work; A deterioration in the terms of trade causes an economy- wide reduction in effort; A minimum wage does not cause unemployment. It forces effort in local services up high enough to support the higher wage. This acts like an increase in labor supply which increases the return on capital. A minimum wage by forcing greater effort increases GDP and reduces earnings inequality, but it makes workers worse off since they prefer the the contracts offered by the free market.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 107 (1999)
Issue (Month): 6 (December)
Pages: 1127-1162

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Handle: RePEc:ucp:jpolec:v:107:y:1999:i:6:p:1127-1162

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  1. Copeland, Brian R., 1989. "Efficiency wages in a Ricardian model of international trade," Journal of International Economics, Elsevier, vol. 27(3-4), pages 221-244, November.
  2. Calvo, Guillermo A, 1975. "Efficient and Optimal Utilization of Capital Services," American Economic Review, American Economic Association, vol. 65(1), pages 181-86, March.
  3. Summers, Lawrence H. & Dickens, William T. & Katz, Lawrence F. & Lang, Kevin, 1989. "Employee Crime and the Monitoring Puzzle," Scholarly Articles 3645199, Harvard University Department of Economics.
  4. Leonardo Auernheimer & Beatriz Rumbos, 1997. "Variable Capital Utilization in a General Equilibrium, "Supply Side" Model," Working Papers 9704, Centro de Investigacion Economica, ITAM.
  5. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  6. Deardorff, Alan V & Stafford, Frank P, 1976. "Compensation of Cooperating Factors," Econometrica, Econometric Society, vol. 44(4), pages 671-84, July.
  7. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
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Cited by:
  1. Abián García-Rodríguez & Fernando Sánchez-Losada, 2014. "R&D poverty traps," UB Economics Working Papers 2014/307, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
  2. Bils, Mark & Chang, Yongsung, 2003. "Welfare costs of sticky wages when effort can respond," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 311-330, March.
  3. Stuart S. Rosenthal & William C. Strange, 2003. "Agglomeration, Labor Supply, and the Urban Rat Race," Center for Policy Research Working Papers 57, Center for Policy Research, Maxwell School, Syracuse University.
  4. Bernardo Blum, 2003. "The Course of Geography: A View about the Process of Wealth. Creation and Distribution," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 423-433.
  5. Bonatti, Luigi, 2002. "The effects of wage compression on unemployment and on the intersectoral distribution of employment: a dynamic model," Economic Systems, Elsevier, vol. 26(2), pages 127-144, June.
  6. Edward E. Leamer & Michael Storper, 2001. "The Economic Geography of the Internet Age," NBER Working Papers 8450, National Bureau of Economic Research, Inc.
  7. Drusilla K. Brown & Alan Deardorff & Robert Stern, 2004. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 279-330 National Bureau of Economic Research, Inc.
  8. Marouani, Mohamed Ali, 1999. "Libéralisation commerciale et emploi en Tunisie: un modèle d’équilibre général avec salaires d’efficience," Economics Papers from University Paris Dauphine 123456789/5173, Paris Dauphine University.
  9. Schaik, A.B.T.M. van & Groot, H.L.F. de, 1997. "Productivity and Unemployment in a Two-country Model with Endogenous Growth," Discussion Paper 1997-53, Tilburg University, Center for Economic Research.
  10. Benjamin, Daniel K. & Thornberg, Christopher, 2007. "Organization and incentives in the age of sail," Explorations in Economic History, Elsevier, vol. 44(2), pages 317-341, April.
  11. van Schaik, Anton B. T. M. & de Groot, Henri L. F., 2002. "Macroeconomic consequences of downsizing," Economic Modelling, Elsevier, vol. 19(3), pages 331-352, May.
  12. Gustavo Crespi & Chiara Criscuolo & Jonathan Haskel, 2007. "Information Technology, Organisational Change and Productivity Growth: Evidence from UK Firms," CEP Discussion Papers dp0783, Centre for Economic Performance, LSE.
  13. Matti Viren, 2006. "Higher wages and capital intensity: a closer look," Discussion Papers 13, Aboa Centre for Economics.
  14. Koeniger, Winfried, 2001. "Trade, Labor Market Rigidities, and Government-Financed Technological Change," IZA Discussion Papers 241, Institute for the Study of Labor (IZA).
  15. Yongsung Chang & Mark Bils, 2002. "Cyclical Movements in Hours and Effort under Sticky Wages," Macroeconomics 0204004, EconWPA.
  16. Crespi, Gustavo & Criscuolo, Chiara & Haskel, Jonathan, 2007. "Information Technology, Organisational Change and Productivity," CEPR Discussion Papers 6105, C.E.P.R. Discussion Papers.

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