Saving good jobs from global competition by rewarding quality and efforts |
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| Affiliation: | 1. School of Economics, Nankai University, Tianjin 300071, China;2. Research Institute for Economics & Business, Kobe University, Kobe 657-8501, Japan;1. Department of Economics, University of Texas at Austin, 2225 Speedway, Stop C3100, Austin, TX 78712, USA;2. Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 151-746, South Korea;3. Department of Economics, University of Illinois at Urbana-Champaign and CAMA, 214 David Kinley Hall, 1407 W. Gregory, Urbana, IL 61801, USA |
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| Abstract: | 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. |
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