Effort, Wages and the International Division of Labor
This paper embeds variable effort into a traditional multi-sector model. Effort enters a production function like total-factor-productivity and on the assumption that effort doesn't affect capital depreciation, the capital-cost savings from high effort operations are passed on to workers. The labor market thus offers a set of contracts with higher wages compensating for higher effort. Among the implications of the model are: The capital savings from effort are greatest in the capital-intensive sectors where the high-effort high-wage contracts occur; Communities inhabited by industrious workers have high returns to capital and comparative advantage in capital-intensive goods; Capital accumulation in a closed economy causes reductions in effort; Capital accumulation in an open economy creates new high-wage high-effort jobs and higher effort levels; Price declines of labor intensive goods twist the wage-eff offer curve reward for hard work; A deterioration in the terms of trade causes an economy- wide reduction in effort; A minimum wage does not cause unemployment. It forces effort in local services up high enough to support the higher wage. This acts like an increase in labor supply which increases the return on capital. A minimum wage by forcing greater effort increases GDP and reduces earnings inequality, but it makes workers worse off since they prefer the the contracts offered by the free market.
|Date of creation:||Oct 1996|
|Date of revision:|
|Publication status:||published as Journal of Political Economy, Vol.107, no.6, part 1 (December 1999): 1127-1163.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Calvo, Guillermo A, 1975. "Efficient and Optimal Utilization of Capital Services," American Economic Review, American Economic Association, vol. 65(1), pages 181-86, March.
- Summers, Lawrence H. & Dickens, William T. & Katz, Lawrence F. & Lang, Kevin, 1989.
"Employee Crime and the Monitoring Puzzle,"
3645199, Harvard University Department of Economics.
- Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
- 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.
- Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
- Leonardo Auernheimer & Beatriz Rumbos, 1997. "Variable Capital Utilization in a General Equilibrium, "Supply Side" Model," Working Papers 9704, Centro de Investigacion Economica, ITAM.
- Deardorff, Alan V & Stafford, Frank P, 1976. "Compensation of Cooperating Factors," Econometrica, Econometric Society, vol. 44(4), pages 671-84, July.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5803. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.