Trade and unemployment with heterogeneous firms : how good jobs are lost
This paper incorporates shirking-based e±ciency wages into a heterogeneous ¯rm model of international trade in which ¯rms di®er in monitoring ability. In equilibrium ¯rms abler in monitoring ask greater worker e®ort and therefore have an edge in productivity over less able competitors while all of them pay the same wage. Di®erent e®ort levels entail di®erent e®ort costs and hence ¯rm speci¯c rents to identical workers. We show that the opening to trade reduces unemployment and, under a plausible condition, raises wages and aggregate factor productivity. Workers staying in employment and the unemployed gain from trade but jobs carrying the highest rents to workers (the least onerous ones) are lost.
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