Overview

Abstract (English)

This paper introduces moral hazard into a general equilibrium model with heterogeneous firms to study the impact of trade liberalization on wage inequality between homogeneous workers. Trade liberalization operates on two margins of inequality, generating between-firm and within-firm wage inequality. The latter remains virtually unexplored in the literature. In the model, wage dispersion among co-workers increases in firm productivity due to di§erential intensity in optimal performance pay. Trade liberalization triggers labor reallocations that increase within-firm inequality. To motivate the theory, the paper documents cross-sectional patterns in residual wage dispersion and performance pay using nationally representative, matched employer-employee data from Canada.

Abstract (French)

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