Imperfect Labour Contracts and International Trade
AbstractIn an economy with imperfect labour contracts, differences in the distribution of human capital are an independent source of comparative advantage. I study a world economy with two sectors, one where output is produced by teams and another where individuals can work alone. When workers' abilities are private information and workers cannot verify the value of output or the level of a firm's profits, feasible labour contracts fail to generate efficient matching of workers within teams. The mismatch of talent on teams is more severe in the country with the more heterogeneous labour force, which generates a comparative disadvantage for this country in team production. Trade exacerbates the 'polarization' of the more diverse society. National income could be raised, and the distribution of income improved, by a marginal expansion in the size of the team sector.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2240.
Date of creation: Sep 1999
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Other versions of this item:
- Grossman, G.M., 1998. "Imperfect Labour Contracts and International Trade," Papers 205, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman, 1999. "Imperfect Labor Contracts and International Trade," NBER Working Papers 6901, National Bureau of Economic Research, Inc.
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
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