A Team-Production Approach to Wages, Employment and Trade

Abstract

This dissertation contains three chapters, each investigating different topics on wages, employment and trade, based on a common team-production approach with the fundamental assumption that in real economy production is organized in teams of agents, each specializing in different tasks. In the first chapter, I present a model that incorporates multidimensional skill endowment for each agent and team production where team members completely specialize in different tasks into the standard Heckscher-Ohlin framework, and investigates the effects of skill distributions on trade and wages. The equilibrium is characterized by the "effective endowment", the part of endowment that is actually utilized in production, which depends on the team matches and the task specialization within matched teams. The paper shows that: (1) the endowment correlation between skill dimensions for each agent and the skill dispersion across agents, additional to aggregate endowment, both matter for the patter of specialization; (2) the different endowment distributions also generate different wage inequality across countries; a common job polarization patter is generated in all developed economics in the globalization era; (3) there are new gains from trade, attributed to potential adjustments of the effective endowment after integration. It provides an unifying framework to explain both the trade patterns and labor market outcomes between similar countries. It also reveals a new channel through which institutions may have effects on comparative advantage and trade. In particular, the effects of different educational policies and labor market institutions on trade through shaping the skill distributions in each country are highlighted. Moreover, by linking globalization to the labor market, it provides an alternative explanation for some stylized facts on wage inequality and employment changes. In the second chapter, I propose a framework based on the team-production approach to deal with asymmetric information. Information asymmetry may cause market failure. With multiple dimensions of private information and proper market segmentation, this problem may be mitigated or even solved. In a labor market example, there are heterogeneous types of managers and workers. Production is performed by manager-worker pairs. There exist multiple industries with production functions that differ in their intensities of manager/worker tasks. When managers' type and workers' type are both private information, those good managers (workers) choose to locate in industries with higher manager (worker) intensities given the bargaining power between managers and workers. Due to the market segmentation by different industries, each manager (worker) faces a trade-off between a higher pay-off to her own type in a manager-intensive (worker-intensive) industry, and a better partner in a less manager-intensive (worker-intensive) industry. In equilibrium, heterogeneous managers (workers) are endogenously sorted by their types into different industries. Thus information asymmetry is mitigated in the segmented markets. Efficiency may be obtained even with information asymmetry. The third chapter introduces a team-production approach built on a two-sided search problem with task-specific human capital to investigate the specificity and return of human capital. With increasing worker mobility in the labor market, it is important to identify the boundary and return of human capital. Empirical evidences on the specificity of human capital are mixed. There are two categories of heterogeneous agents in the market searching for a partner of a different category in order to form a team and produce. A stable match is formed only when both sides agree. With search frictions, the search equilibrium is characterized by clusters of agents. This approach generates a form of firm-specificity of human capital, which explains the firm-sponsored general-skill training. An empirically found negative correlation between the wage levels and turnover rates also arises from the model. Additionally, this model provides a new micro-foundation for the social increasing returns in human capital accumulation. Several interesting empirical implications from this approach are also discussed.