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Saving Good Jobs under Global Competition by Rewarding Quality and Efforts

  • Yongjin Wang

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

  • Laixun Zhao

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

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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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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  1. Bulent Unel & Elias Dinopoulos, . "A Simple Model of Quality Heterogeneity and International Trade," Departmental Working Papers 2009-04, Department of Economics, Louisiana State University.
  2. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
  3. Mary Amiti & Donald R. Davis, 2008. "Trade, Firms, and Wages: Theory and Evidence," NBER Working Papers 14106, National Bureau of Economic Research, Inc.
  4. Stephen Redding & Oleg Itskhoki & Marc-Andreas Muendler & Elhanan Helpman, 2012. "Trade and Inequality: From Theory to Estimation," 2012 Meeting Papers 135, Society for Economic Dynamics.
  5. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2011. "Firms' Exporting Behavior under Quality Constraints," Working Papers 628, Research Seminar in International Economics, University of Michigan.
  6. 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.
  7. Davis, Donald R. & Harrigan, James, 2011. "Good jobs, bad jobs, and trade liberalization," Journal of International Economics, Elsevier, vol. 84(1), pages 26-36, May.
  8. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
  9. 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.
  10. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics 20471, University of Munich, Department of Economics.
  11. Kenneth R. Troske & Kimberly Bayard, 1999. "Examining the Employer-Size Wage Premium in the Manufacturing, Retail Trade, and Service Industries Using Employer-Employee Matched Data," American Economic Review, American Economic Association, vol. 89(2), pages 99-103, May.
  12. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 227-51, February.
  13. Dennis Dittrich & Martin G. Kocher, 2006. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Tinbergen Institute Discussion Papers 06-098/1, Tinbergen Institute.
  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.
  15. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  16. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  17. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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