Skill Acquisition, Incentive Contracts And Jobs: Labor Market Adjustment To Trade
This paper examines how global integration influences worker behavior regarding skill acquisition, as well as firm behavior regarding incentive contracts and occupational diversity. The approach integrates several key components of international trade and the wage distribution in developed countries: namely heterogeneous firms, trade in similar goods, and performance payments to workers that endogenously obtain different skill levels. Greater trading opportunities reduce aggregate prices, causing workers to experience a greater marginal utility derived from income, as well as the skills that aid them in fulfilling performance contracts. Firms respond to skill accumulation among the labor force by adjusting the provision of incentive contracts, and the types of jobs they offer.