IDEAS home Printed from https://ideas.repec.org/p/car/carecp/21-04.html
   My bibliography  Save this paper

Trade-Induced Reduction In Unemployment Of A High-Wage Economy: A Minimum-Wage Model With Country-Specific Technology

Author

Abstract

This paper shows that a high-wage country might reduce its unemployment by trading with a low-wage economy, despite popular predictions to the contrary. We demonstrate this possibility in a Heckscher-Ohlin-Samuelson type of model with two countries, which differ only because one of them has a binding minimum-wage constraint and a technological improvement that (despite the heightened wage) creates a comparative advantage in the labor-intensive good. Under these circumstances, the minimum-wage economy will experience an unemployment reduction when it trades with a low-wage counterpart. This theoretical result is consistent with some recent empirical estimates.

Suggested Citation

  • Richard A. Brecher & Zhihao Yu, 2021. "Trade-Induced Reduction In Unemployment Of A High-Wage Economy: A Minimum-Wage Model With Country-Specific Technology," Carleton Economic Papers 21-04, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:21-04
    as

    Download full text from publisher

    File URL: https://carleton.ca/economics/wp-content/uploads/cewp21-04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    2. Robert C. Feenstra & Akira Sasahara, 2018. "The ‘China shock,’ exports and U.S. employment: A global input–output analysis," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1053-1083, November.
    3. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    4. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    5. Robert E. Baldwin, 2008. "The Development and Testing of Heckscher-Ohlin Trade Models: A Review," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026562, December.
    6. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    7. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    8. Brecher, Richard A & Choudhri, Ehsan U, 1982. "The Leontief Paradox, Continued," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 820-823, August.
    9. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 98-116.
    10. Ronald Findlay & Harry Grubert, 1959. "Factor Intensities, Technological Progress, And The Terms Of Trade," Oxford Economic Papers, Oxford University Press, vol. 11(1), pages 111-121.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard A. Brecher & Zhihao Yu, 2023. "Trade‐induced reduction in unemployment of a high‐wage economy," The World Economy, Wiley Blackwell, vol. 46(10), pages 2983-2989, October.
    2. Richard A. Brecher & Zhiqi Chen, 2010. "Unemployment of Skilled and Unskilled Labor in an Open Economy: International Trade, Migration, and Outsourcing," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 990-1000, November.
    3. Udo Kreickemeier & Douglas Nelson, 2017. "Fair Wages, Unemployment, and Technological Change in a Global Economy," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 8, pages 205-235, World Scientific Publishing Co. Pte. Ltd..
    4. Dumont, Michel, 2004. "The Impact of International Trade with Newly Industrialised Countries on the Wages and Employment of Low-Skilled and High-Skilled Workers in the European Union," Thesis Commons bmxag, Center for Open Science.
    5. Todd Sanderson & Fredoun Z. Ahmadi‐Esfahani, 2009. "Testing Comparative Advantage in Australian Broadacre Agriculture Under Climate Change: Theoretical and Empirical Models," Economic Papers, The Economic Society of Australia, vol. 28(4), pages 346-354, December.
    6. repec:eee:labchp:v:3:y:1999:i:pb:p:2215-2288 is not listed on IDEAS
    7. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    8. Elhanan Helpman, 1999. "The Structure of Foreign Trade," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 121-144, Spring.
    9. Robert Stehrer, 2010. "The effects of factor and sector biased technical change revisited," Economic Change and Restructuring, Springer, vol. 43(1), pages 65-94, February.
    10. Wisarut Suwanprasert, 2020. "Optimal trade policy, equilibrium unemployment, and labor market inefficiency," Review of International Economics, Wiley Blackwell, vol. 28(5), pages 1232-1268, November.
    11. David Rezza Baqaee & Emmanuel Farhi, 2024. "Networks, Barriers, and Trade," Econometrica, Econometric Society, vol. 92(2), pages 505-541, March.
    12. Louis Dupuy & Matthew Agarwala, 2014. "International trade and sustainable development," Chapters, in: Giles Atkinson & Simon Dietz & Eric Neumayer & Matthew Agarwala (ed.), Handbook of Sustainable Development, chapter 25, pages 399-417, Edward Elgar Publishing.
    13. R. E. Baldwin & G. G. Cain, "undated". "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty.
    14. Horgos Daniel, 2012. "International Outsourcing and Wage Rigidity," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-28, June.
    15. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
    16. Elhanan Helpman, 2014. "Foreign Trade and Investment: Firm-level Perspectives," Economica, London School of Economics and Political Science, vol. 81(321), pages 1-14, January.
    17. Yu Sheng & Xinpeng Xu, 2010. "Trade theorems with search unemployment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(3), pages 795-815, August.
    18. 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.
    19. Kohl, Miriam & Richter, Philipp M., 2023. "Unilateral tax policy in the open economy," Journal of International Economics, Elsevier, vol. 145(C).
    20. Ruffin, Roy J., 2001. "Quasi-specific factors: worker comparative advantage in the two-sector production model," Journal of International Economics, Elsevier, vol. 53(2), pages 445-461, April.
    21. 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.

    More about this item

    Keywords

    Trade; Unemployment; Minimum wage; Country-specific technology;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:car:carecp:21-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Court Lindsay (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.