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Capital, heterogeneous labour, global goods markets and unemployment

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  • Schweinberger, Albert G.

Abstract

A two country model of trade between a flexiwage and a minimum wage economy or two mmjmum wage economies is developed. The main novelty is that there are three factors of production: capital, skilled and unskilled labour. This unlocks the terms of trade. Unskilled labour is subject to the same or different minimum wages in one or both countries. The trading pattern of the two countries is explained in terms of differences in various factor intensities, endowments with the two fully employed factors (capital and skilled labour) and the binding minimum wage rates. Free trade may reduce the wage of the unskilled workers in the flexiwage economy and lower the unemployment in the minimum wage economy. This follows because unemployment may be a source of competitive advantage due to the income effect. If the two countries differ only in terms of factor endowments (but operate the same minimum wage) free trade moves the two countries towards an equalisation of unemployment.

Suggested Citation

  • Schweinberger, Albert G., 2001. "Capital, heterogeneous labour, global goods markets and unemployment," Discussion Papers, Series I 309, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:309
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    References listed on IDEAS

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    More about this item

    Keywords

    Minimum wages; global markets; unemployment;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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