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Unemployment effects of trade with a low‐wage country: A minimum‐wage model with sector‐specific factors

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  • Richard A. Brecher
  • Zhihao Yu

Abstract

Contrary to conventional wisdom, this paper shows that a high‐wage economy can paradoxically reduce its level of aggregate unemployment by engaging in international trade with a low‐wage country. We demonstrate this possibility after introducing a minimum wage into the basic specific‐factor model (with immobile capital and mobile labor), even though the opposite result is known to arise in the longer‐run framework of the standard Heckscher–Ohlin–Samuelson model (with both inputs mobile). Our result provides a cautionary note for public‐policy discussions that promote trade barriers as a way to reduce unemployment.

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  • Richard A. Brecher & Zhihao Yu, 2021. "Unemployment effects of trade with a low‐wage country: A minimum‐wage model with sector‐specific factors," Review of International Economics, Wiley Blackwell, vol. 29(2), pages 402-408, May.
    • Handle: RePEc:bla:reviec:v:29:y:2021:i:2:p:402-408
    DOI: 10.1111/roie.12530
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    1. Daron Acemoglu & David Autor & David Dorn & Gordon H. Hanson & Brendan Price, 2016. "Import Competition and the Great US Employment Sag of the 2000s," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 141-198.
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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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