German Pupato, Ryerson University - Hosted by J.A. Amegashie

Title: Performance Pay, Trade and Inequality

Abstract:

This paper introduces moral hazard into a standard general equilibrium model with heterogeneous …rms, to study the impact of trade liberalization on wage inequality between identical workers. Trade liberalization operates on two margins of inequality, generating between- and within-…rm wage dispersion. While the former channel has been studied in recent papers, the latter is novel in the literature. In the model, within …rm wage dispersion increases in …rm productivity as a result of di¤erential intensity in optimal performance-pay compensation across …rms. International trade liberalization triggers labor reallocations towards high productivity …rms that result in higher within …rm inequality.