Does European Unemployment Prop up American Wages?
We consider trade between a flexible wage America and a rigid real wage Europe. In a benchmark case, a move from autarky to free trade doubles the European unemployment rate, while it raises the American unskilled wage to the high European level. Entry of the unskilled South to world markets raises unemployment in Europe. But Europe's commitment to the high wage completely insulates America from the shock. Immigration to America raises American income, but lowers European income dollar-for-dollar, while European unemployment rises one-for-one. We consider a stylized game of the choice of factor market institutions. Mitterand's Europe chooses a high minimum wage and Reagan's America chooses a flexible wage for the unskilled. Paradoxically, unskilled workers are worse off in Europe. Trade equalizes wages, but Europeans bear all of the unemployment required to sustain the high wage.
|Date of creation:||Jun 1996|
|Date of revision:|
|Publication status:||published as American Economic Review (June 1998).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Card, 1989.
"The Impact of the Mariel Boatlift on the Miami Labor Market,"
NBER Working Papers
3069, National Bureau of Economic Research, Inc.
- David Card, 1990. "The Impact of the Mariel Boatlift on the Miami Labor Market," ILR Review, Cornell University, ILR School, vol. 43(2), pages 245-257, January.
- David Card, 1990. "The impact of the Mariel boatlift on the Miami labor market," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(2), pages 245-257, January.
- David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," Working Papers 633, Princeton University, Department of Economics, Industrial Relations Section..
- Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, March.
- Edward E. Leamer, 1994. "Trade, Wages and Revolving Door Ideas," NBER Working Papers 4716, National Bureau of Economic Research, Inc.
- Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
- Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
- David Blanchflower & L Katz & G Loveman, 1993.
"A Comparison of Changes in the Structure of Wages in Four OECD Countries,"
CEP Discussion Papers
dp0144, Centre for Economic Performance, LSE.
- Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters, in: Differences and Changes in Wage Structures, pages 25-66 National Bureau of Economic Research, Inc.
- Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1993. "A Comparison of Changes in the Structure of Wages," NBER Working Papers 4297, National Bureau of Economic Research, Inc.
- Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
- Mussa, Michael, 1979. "The two-sector model in terms of its dual : A geometric exposition," Journal of International Economics, Elsevier, vol. 9(4), pages 513-526, November.
- Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
- Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
- Donald R. Davis & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1996. "The Heckscher-Ohlin-Vanek Model of Trade: Why Does It Fail? When Does It Work?," NBER Working Papers 5625, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5620. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.