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Good jobs, bad jobs, and trade liberalization

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Author Info
Donald R. Davis () (Department of Economics, Columbia University)
James Harrigan () (Federal Reserve Bank of New York)

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Abstract

Globalization threatens "good jobs at good wages", according to overwhelming public sentiment. Yet professional discussion often rules out such concerns a priori. We instead offer a framework to interpret and address these concerns. We develop a model in which monopolistically competitive firms pay efficiency wages, and these firms differ in both their technical capability and their monitoring ability. Heterogeneity in the ability of firms to monitor effort leads to different wages for identical workers - good jobs and bad jobs - as well as equilibrium unemployment. Wage heterogeneity combines with differences in technical capability to generate an equilibrium size distribution of firms. As in Melitz (2003), trade liberalization increases aggregate efficiency through a firm selection effect. This efficiency-enhancing selection effect, however, puts pressure on many "good jobs", in the sense that the high-wage jobs at any level of technical capability are the least likely to survive trade liberalization. In a central case, trade raises the average real wage but leads to a loss of many "good jobs" and to a steady-state increase in unemployment.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0607-07.

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Length: 46 pages
Date of creation: 2007
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Handle: RePEc:clu:wpaper:0607-07

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  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  2. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January. [Downloadable!] (restricted)
  3. Todd L. Idson & Walter Y. Oi, 1999. "Workers Are More Productive in Large Firms," American Economic Review, American Economic Association, vol. 89(2), pages 104-108, May. [Downloadable!] (restricted)
  4. Erica L. Groshen & Alan B. Krueger, 1990. "The structure of supervision and pay in hospitals," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 134-146, February.
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  5. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March. [Downloadable!] (restricted)
  6. Daniel Nagin & James Rebitzer & Seth Sanders & Lowell Taylor, 2002. "Monitoring, Motivation and Management: The Determinants of Opportunistic Behavior in a Field Experiment," NBER Working Papers 8811, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  8. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September. [Downloadable!] (restricted)
  9. Matusz, Steven J, 1996. "International Trade, the Division of Labor, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 71-84, February.
  10. Hoon, Hian Teck, 2001. "Adjustment of wages and equilibrium unemployment in a Ricardian global economy," Journal of International Economics, Elsevier, vol. 54(1), pages 193-209, June. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
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  12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  13. repec:rus:hseeco:122439 is not listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruno Decreuse & Paul Maarek, 2008. "FDI and the labor share in developing countries: A theory andsome evidence," Working Papers halshs-00333704_v1, HAL. [Downloadable!]
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  2. Paulo Bastos & Natália P. Monteiro & Odd Rune Straume, 2008. "Firm heterogeneity and wages in unionised labour markets: Theory and evidence," NIPE Working Papers 14/2008, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  3. Hartmut Egger & Peter Egger & James R. Markusen, 2009. "International Welfare and Employment Linkages Arising from Minimum Wages," NBER Working Papers 15196, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Tebaldi, Edinaldo & Kim, Jongsung, 2008. "Two Tales on the Returns to Education: The Impact of Trade on Wages," MPRA Paper 9698, University Library of Munich, Germany. [Downloadable!]
  7. Mary Amiti & Donald R. Davis, 2008. "Trade, Firms, and Wages: Theory and Evidence," NBER Working Papers 14106, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Wages, Unemployment and Inequality with Heterogeneous Firms and Workers," NBER Working Papers 14122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Alexander Vogel, 2009. "Exporter Performance in the German Business Services Sector: First Evidence from the Services Statistics Panel," Working Paper Series in Economics 111, University of Lüneburg, Institute of Economics. [Downloadable!]
  10. Schank, Thorsten & Schnabel, Claus & Wagner, Joachim, 2008. "Higher Wages in Exporting Firms: Self-Selection, Export Effect, or Both? First Evidence from German Linked Employer-Employee Data," IZA Discussion Papers 3359, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Pravin Krishna & Mine Zeynep Senses, 2009. "International Trade and Labor Income Risk in the United States," NBER Working Papers 14992, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Arnaud Costinot, 2008. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," University of California at San Diego, Economics Working Paper Series 2006-05R, Department of Economics, UC San Diego. [Downloadable!]
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