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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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    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
    Date of revision:
    Handle: RePEc:zbw:kondp1:309
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    1. Aghion, Philippe & Caroli, Eve & García-Peñalosa, Cecilia, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Scholarly Articles 12502063, Harvard University Department of Economics.
    2. repec:tpr:qjecon:v:100:y:1985:i:3:p:551-70 is not listed on IDEAS
    3. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
    4. 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.
    5. repec:tpr:qjecon:v:92:y:1978:i:3:p:361-74 is not listed on IDEAS
    6. 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.
    7. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    8. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
    9. 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.
    10. 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.
    11. repec:tpr:qjecon:v:88:y:1974:i:1:p:98-116 is not listed on IDEAS
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