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Capital, heterogeneous labour, global goods markets and unemployment

  • Schweinberger, Albert G.
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    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.

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    File URL: http://econstor.eu/bitstream/10419/68932/1/685626040.pdf
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    Paper provided by University of Konstanz, Department of Economics in its series Discussion Papers, Series I with number 309.

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    Date of creation: 2001
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    Handle: RePEc:zbw:kondp1:309
    Contact details of provider: Postal: D-78457 Konstanz
    Phone: +49 7531 88 2314
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    Web page: http://www.wiwi.uni-konstanz.de/

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    1. Donald R. Davis, 1996. "Technology, Unemployment, and Relative Wages in a Global Economy," NBER Working Papers 5636, National Bureau of Economic Research, Inc.
    2. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
    3. Neary, J Peter, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 551-70, August.
    4. Richard A. Brecher, 1980. "Increased Unemployment from Capital Accumulation in a Minimum-Wage Model of an Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 152-58, February.
    5. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    6. Schweinberger, Albert G, 1978. "Employment Subsidies and the Theory of Minimum Wage Rates in General Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 92(3), pages 361-74, August.
    7. Falk, Martin & Koebel, Bertrand M., 1997. "The Demand of Heterogeneous Labour in Germany," ZEW Discussion Papers 97-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
    9. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    10. 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 478-94, June.
    11. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
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