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International trade and quality of labour

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  • Chaudhuri, Sarbajit
  • Marjit, Sugata

Abstract

This paper argues that better prospect for exports induces firms to distinguish between high-quality workers and low-quality workers by providing an incentive wage. Thus, trade leads to an identification of labour quality, widening the wage gap between the high-quality (skilled) and the low-quality (unskilled) workers. The results are derived in a model containing both moral hazard and adverse selection problems. We provide a different argument from the ones as available in the existing literature including the standard Shapiro and Stiglitz (1984) shirking model. Finally, the results of the paper have some important policy implications.

Suggested Citation

  • Chaudhuri, Sarbajit & Marjit, Sugata, 2017. "International trade and quality of labour," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 582-595.
    • Handle: RePEc:eee:reveco:v:49:y:2017:i:c:p:582-595
    DOI: 10.1016/j.iref.2017.03.018
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    Cited by:

    1. Rashmi Ahuja & Sugata Marjit, 2022. "Liberalizing Trade and Capital Flows and the Wage Gap: Does Sequencing Matter?," Open Economies Review, Springer, vol. 33(2), pages 375-389, April.
    2. Jiancai Pi & Yuhan Luo, 2024. "Climate change and wage inequality," Journal of Economics, Springer, vol. 143(3), pages 279-303, December.
    3. Gouranga Gopal Das & Sugata Marjit, 2018. "Skill, Innovation and Wage Inequality: Can Immigrants be the Trump Card?," CESifo Working Paper Series 7082, CESifo.
    4. Das, Gouranga Gopal & Marjit, Sugata & Kar, Mausumi, 2020. "The Impact of Immigration on Skills, Innovation and Wages: Education Matters more than where People Come from," Journal of Policy Modeling, Elsevier, vol. 42(3), pages 557-582.
    5. Shreya Roy & Sugata Marjit & Bibek Ray Chaudhuri, 2022. "Role of Artificial Intelligence in Intra-Sectoral Wage Inequality in an Open Economy: A Finite Change Approach," CESifo Working Paper Series 9862, CESifo.

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    More about this item

    Keywords

    Quality of labour; Incomplete information; Incentive contract; International trade; Wage gap; Ricardian trade model;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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