The author examines the effects of import tariffs and export subsidies in a two-sector model with sector-specific wage differentials and an equilibrium level of unemployment. In general, such policies change both the composition and level of employment. Policies designed to attract workers to the high-wage sector could also result in reduced employment and lower social welfare. This could happen if the low-wage sector is also the relatively labor-intensive sector. In such situations, the optimal policy might entail protecting the low-wage, labor-intensive sector. I examine the effects of import tariffs and export subsidies in a two-sector model with sector-specific wage differentials and an equilibrium level of unemployment. In general, such policies change both the composition and level of employment. Policies designed to attract workers to the high-wage sector could also result in reduced employment and lower social welfare. This could happen if the low-wage sector is also the relatively labour-intensive sector. In such situations the optimal policy might entail protecting the low-wage labour-intensive sector.
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Volume (Year): 27 (1994) Issue (Month): 4 (November) Pages: 939-49 Download reference. The following formats are available: HTML,
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Handle: RePEc:cje:issued:v:27:y:1994:i:4:p:939-49
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Devashish Mitra & Priya Ranjan, 2007.
"Offshoring and Unemployment,"
Working Papers
060719, University of California-Irvine, Department of Economics.
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