Trade Openness: Consequences for the Elasticity of Demand for Labor and Wage Outcomes
AbstractLeamer (1995), Rodrik (1997) and Wood (1995) have suggested, without qualification, that the demand-for-labor curve is more elastic when an economy is open than when it is closed. I demonstrate that this proposition is not valid in general. The proposition can be violated in both the 2x2 and specific-factors models. Furthermore, many of the results obtained by Rodrik (1997), assuming the proposition to be true, fail to hold in general when we spell out the full structure of the model. Thus, within two most popular models of trade--the 2x2 and specific-factors models--, there is no guarantee that openness leads to a greater incidence of higher labor standards being borne by workers or to greater volatility in wage earnings as a consequence of shocks to the economy. It is also not true in general that when openness lowers the bargaining power of workers, it contributes negatively to wages. In the 2x2 model, exactly the opposite may happen.
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Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0308007.
Length: 345 pages
Date of creation: 18 Aug 2003
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Find related papers by JEL classification:
- F1 - International Economics - - Trade
- F2 - International Economics - - International Factor Movements and International Business
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