Globalization: Workers Earn Less, Earners Work More

This paper studies the effect of increased foreign competition on the incentives, wage structures, promotion profiles and job turnover of managers in the U.S. We use a panel of executives, two alternative measures of foreign competition (import penetration and average tariffs) and instrumental variables to 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. It increases the sensitivity of pay to performance, it raises the return to a promotion, and it increases the probability of leaving the firm. We also find an increase in inequality in the wages of the top executives of the firm with CEOs typically experiencing wage increases while lower rank executives see their wages fall. Finally, we find that the increase in incentive provision operates in all firms independently of their initial degree of corporate control or financial pressure.