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Skill Acquisition, Incentive Contracts and Jobs: Labor Market Adjustment to Trade

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  • Sly, Nicholas

Abstract

This paper examines how global integration influences worker behavior regarding skill acquisition, as well as firm behavior regarding incentive contracts and occupational diversity. The approach integrates several key components of international trade and the wage distribution in developed countries: namely heterogeneous firms, trade in similar goods, and performance payments to workers that endogenously obtain different skill levels. Greater trading opportunities reduce aggregate prices, causing workers to experience a greater marginal utility derived from income, as well as the skills that aid them in fulfilling performance contracts. Firms respond to skill accumulation among the labor force by adjusting the provision of incentive contracts, and the types of jobs they offer. Labor market adjustment to trade liberalization is characterized by a more steep, but less extensive, provision of incentive contracts among the labor force; higher overall wage inequality exhibiting a U-shaped differential; and job polarization across skill-groups.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25004.

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Date of creation: 17 Aug 2010
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Handle: RePEc:pra:mprapa:25004

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Keywords: Job Polarization; Performance Pay; Trade Adjustment;

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