Saving good jobs from global competition by rewarding quality and efforts

This paper links firms' endogenous quality choices to worker effort and efficiency wages. In the model, firms differ in their ability to monitor workers who have an incentive to shirk. As high quality output requires high worker effort, it is firms with better monitoring ability that upgrade th...

Full description

Saved in:
Bibliographic Details
Published in:Journal of international economics 2015-07, Vol.96 (2), p.426-434
Main Authors: Wang, Yongjin, Zhao, Laixun
Format: Article
Language:English
Subjects:
Competition
Decision making models
Economic efficiency
Economic theory
Efficiency wages
Inequality
Labor economics
Monitoring
Output
Studies
Trade liberalization
Unemployment
Wage differential
Wage differentials
Welfare economics
Workers
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper links firms' endogenous quality choices to worker effort and efficiency wages. In the model, firms differ in their ability to monitor workers who have an incentive to shirk. As high quality output requires high worker effort, it is firms with better monitoring ability that upgrade their quality. Indeed, these firms upgrade their quality to such a degree that they also end up paying higher wages to induce even more worker effort. Trade liberalization can induce greater or smaller wage inequality but always enlarges the welfare inequality as higher wages go hand in hand with even greater effort. •We link firms' endogenous quality choice to worker effort and efficiency wages.•Firms with higher monitoring accuracy pay higher wages but require more effort, and wage is "compressed".•After trade opening, while bad jobs with low wages and low rents are destroyed, good jobs are created.•Trade liberalization raises welfare, but impacts unemployment ambiguously.•Due to wage compression, the welfare inequality and wage inequality can diverge.
ISSN:0022-1996
1873-0353
DOI:10.1016/j.jinteco.2015.03.005