Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/34050 
Year of Publication: 
2006
Series/Report no.: 
IZA Discussion Papers No. 2408
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
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.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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