TY  - RPRT
        AU  - Cuñat, Vicente
AU  - Guadalupe, Maria
        TI  - Globalization and the Provision of Incentives Inside the Firm: The Effect of Foreign Competition
        PY  - 2006/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 2408
        UR  - https://www.iza.org/publications/dp2408
        AB  - This paper studies the effect of changes in foreign competition on the incentives faced by U.S. managers in the form of wage structures, promotion profiles, and job turnover. We use a panel of executives and measure foreign competition as import penetration. Using tariffs and exchange rates as instrumental variables, we estimate the causal effect of globalization on the labor market outcomes of these workers. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it raises the return to a promotion and increases pay inequality among the top executives of the firm, with CEOs typically experiencing wage increases while lower-ranking executives see their wages fall. Third, higher competition is associated with a higher probability of leaving the firm. Finally, we show that higher foreign competition also is associated with a higher demand for talent at the top of the firm. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures.
        KW  - foreign competition
KW  - demand for talent
KW  - promotions
KW  - job turnover
KW  - wage ladders
KW  - wage structure
KW  - performance-related-pay
KW  - incentives
KW  - globalization
KW  - product market competition
        ER  -