TY  - JOUR
AU  - Grossman,Gene M.
TI  - Imperfect Labor Contracts and International Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6901
PY  - 1999
Y2  - January 1999
UR  - http://www.nber.org/papers/w6901
L1  - http://www.nber.org/papers/w6901.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu
AB  - In an economy with imperfect labor contracts, differences in the distribution of human capital are an independent source of comparative advantage.  I study a world economy with two sectors, one where output is produced by teams and another where individuals can work alone.  When workers' abilities are private information and workers cannot verify the value of output or the level of a firm's profits, feasible labor contracts fail to generate efficient matching of workers within teams.  The general equilibrium has the most talented workers opting for individualistic activities, while their less talented compatriots join teams.  The team mismatches are more severe in the country with the more heterogeneous labor force, which generates a comparative disadvantage for this country in team production. Trade exacerbates the  polarization' of the more diverse society. National income could be raised, and the distribution of income improved, by a marginal expansion in the size of the team sector.
ER  -