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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.

Suggested Citation

  • Steven J. Matusz, 1994. "International Trade Policy in a Model of Unemployment and Wage Differentials," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 939-949, November.
    • Handle: RePEc:cje:issued:v:27:y:1994:i:4:p:939-49
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    Citations

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    Cited by:

    1. Egger, Hartmut & Egger, Peter & Kreickemeier, Udo, 2013. "Trade, wages, and profits," European Economic Review, Elsevier, vol. 64(C), pages 332-350.
    2. Eckel, Carsten, 2003. "Labor market adjustments to globalization: unemployment versus relative wages," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 173-188, August.
    3. Steven J. Matusz & David G. Tarr, 2017. "Adjusting To Trade Policy Reform," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 4, pages 77-114, World Scientific Publishing Co. Pte. Ltd..
    4. Hartmut Egger & Udo Kreickemeier, 2017. "International Fragmentation: Boon or Bane for Domestic Employment?," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 9, pages 237-263, World Scientific Publishing Co. Pte. Ltd..
    5. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing Limited, vol. 32(3), pages 273-299, June.
    6. Devashish Mitra & Priya Ranjan, 2007. "Offshoring and Unemployment," Working Papers 060719, University of California-Irvine, Department of Economics.
    7. Elias Dinopoulos & Laixun Zhao, 2007. "Child Labor and Globalization," Journal of Labor Economics, University of Chicago Press, vol. 25(3), pages 553-579.
    8. Albert, Max & Meckl, Jürgen, 1997. "Efficiency wages, unemployment and welfare: A trade theorists' guide," Discussion Papers, Series II 348, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    9. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306, World Scientific Publishing Co. Pte. Ltd..
    10. Albert Max & Meckl JuÈrgen, 2001. "Efficiency-Wage Unemployment and Intersectoral Wage Differentials in a Heckscher- Ohlin Model," German Economic Review, De Gruyter, vol. 2(3), pages 287-301, August.
    11. 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.
    12. Judith C. Chin, 1998. "Rural‐Urban Wage Differentials, Unemployment, and Efficiency Wages: An Open Economy Policy Analysis," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 294-307, October.
    13. Özlem Onaran, 2007. "The effects of globalization on income distribution," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 100, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    14. Bernard Hoekman & Alan L. Winters, 2005. "Trade and Employment: Stylized Facts and Research Findings," Working Papers 7, United Nations, Department of Economics and Social Affairs.
    15. Max Albert & Jürgen Meckl, 2003. "Involuntary Unemployment and the Existence of GDP Functions," Metroeconomica, Wiley Blackwell, vol. 54(1), pages 79-88, February.
    16. Carl Davidson & Steven J. Matusz, 2010. "Our Motivation," Introductory Chapters, in: International Trade with Equilibrium Unemployment, Princeton University Press.

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