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Trade Openness: Consequences for the Elasticity of Demand for Labor and Wage Outcomes

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  • Arvind Panagariya

    (University of Maryland)

Abstract

Leamer (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 Info

Paper provided by EconWPA in its series International Trade with number 0308007.

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Length: 345 pages
Date of creation: 18 Aug 2003
Date of revision:
Handle: RePEc:wpa:wuwpit:0308007

Note: Type of Document - Tex/WordPerfect/Handwritten; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 345,395,4323247 ; figures: included/request from author/draw your own
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References

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  1. Hakura, D. & Deardorff, A.V., 1993. "Trade and Wages: What Are the Questions?," Working Papers 341, Research Seminar in International Economics, University of Michigan.
  2. Jones, Ronald W, 1971. "Distortions in Factor Markets and the General Equilibrium Model of Production," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 437-59, May-June.
  3. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
  4. Magee, Stephen P, 1971. "Factor Market Distortions, Production, Distribution, and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 623-43, November.
  5. Bhagwati, Jagdish & Hamada, Koichi, 1974. "The brain drain, international integration of markets for professionals and unemployment : A theoretical analysis," Journal of Development Economics, Elsevier, vol. 1(1), pages 19-42, April.
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Cited by:
  1. Daniel Ortega & Francisco Rodríguez, 2005. "Trade Policy and Factor Prices: An Empirical Strategy," Wesleyan Economics Working Papers 2005-004, Wesleyan University, Department of Economics.
  2. Torben Andersen & Allan Sørensen, 2011. "Globalisation squeezes the public sector—is it so obvious?," International Tax and Public Finance, Springer, vol. 18(4), pages 369-382, August.
  3. Giovanni S.F. Bruno & Anna M. Falzoni & Rodolfo Helg, 2004. "Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries," KITeS Working Papers 153, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2004.
  4. T. N. Srinivasan & Jagdish Bhagwati, 1999. "Outward-Orientation and Development: Are Revisionists Right," Working Papers 806, Economic Growth Center, Yale University.

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