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Saving Good Jobs under Global Competition by Rewarding Quality and Efforts

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  • Yongjin Wang

    (School of Economics, Nankai University, Tianjin, China)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper links firms’ endogenous quality choice to worker effort and efficiency wages. The model generates two distinct features: effort is rewarded and quality is rewarded. Then firms with higher monitoring accuracy produce higher quality and pay higher wages. When trade is opened, while bad jobs with low wages and low rents are destroyed, good jobs are created. Nevertheless, unemployment can either rise or fall and wage polarization can arise, depending on the structure of monitoring cost and on the share of exporting firms. These results contrast sharply with the literature, and are consistent with empirical evidence.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2013-17.pdf
File Function: Revised version, 2013
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2013-17.

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Length: 35 pages
Date of creation: May 2013
Date of revision: May 2013
Handle: RePEc:kob:dpaper:dp2013-17

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Keywords: Trade liberalization; Unemployment; Efficiency wages; Quality choice;

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References

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  1. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 489-530, 05.
  2. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics, University of Munich, Department of Economics 20471, University of Munich, Department of Economics.
  3. Donald R. Davis & James Harrigan, 2007. "Good jobs, bad jobs, and trade liberalization," Discussion Papers, Columbia University, Department of Economics 0607-07, Columbia University, Department of Economics.
  4. Dittrich, Dennis A. V. & Kocher, Martin G., 2011. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Discussion Papers in Economics 12222, University of Munich, Department of Economics.
  5. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
  6. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 227-51, February.
  7. Juan Carlos Hallak & Jagadeesh Sivadasan, 2010. "Firms' Exporting Behavior under Quality Constraints," Working Papers 99, Universidad de San Andres, Departamento de Economia, revised Mar 2010.
  8. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen J. Redding, 2012. "Trade and Inequality: From Theory to Estimation," NBER Working Papers 17991, National Bureau of Economic Research, Inc.
  9. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
  10. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  11. Dinopoulos, Elias & Unel, Bulent, 2013. "A simple model of quality heterogeneity and international trade," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(1), pages 68-83.
  12. John Gibson & Steven Stillman, 2009. "Why Do Big Firms Pay Higher Wages? Evidence from an International Database," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 213-218, February.
  13. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  14. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
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