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International Trade Policy in a Model of Unemployment and Wage Differentials

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  • Steven J. Matusz

Abstract

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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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 27 (1994)
Issue (Month): 4 (November)
Pages: 939-49

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Handle: RePEc:cje:issued:v:27:y:1994:i:4:p:939-49

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Citations

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Cited by:
  1. Matusz, Steven J. & Tarr, David, 1999. "Adjusting to trade policy reform," Policy Research Working Paper Series 2142, The World Bank.
  2. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  3. Devashish Mitra & Priya Ranjan, 2007. "Offshoring and Unemployment," Working Papers 060719, University of California-Irvine, Department of Economics.
  4. Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2011. "Trade, wages, and profits," University of Tuebingen Working Papers in Economics and Finance 23, University of Tuebingen, Faculty of Economics and Social Sciences.
  5. Egger, Hartmut & Kreickemeier, Udo, 2008. "International fragmentation: Boon or bane for domestic employment," European Economic Review, Elsevier, vol. 52(1), pages 116-132, January.
  6. Hoekman & Bernard & Winters, L. Alan, 2005. "Trade and employment : stylized facts and research findings," Policy Research Working Paper Series 3676, The World Bank.
  7. Das, Satya P., 2001. "Trade and relative wages: The role of supervisory function by skilled workers," European Economic Review, Elsevier, vol. 45(1), pages 45-65, January.
  8. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, July.
  9. Eckel, Carsten, 2003. "Labor market adjustments to globalization: Unemployment versus relative wages," Munich Reprints in Economics 20538, University of Munich, Department of Economics.
  10. Max Albert & Jürgen Meckle, 2001. "Efficiency-Wage Unemployment and Intersectoral Wage Differentials in a Heckscher-Ohlin Model," German Economic Review, Verein für Socialpolitik, vol. 2(3), pages 287-301, 08.

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