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Unemployment Effects of Trade with a Low-Wage Country: A Minimum-Wage Model with Sector-Specific Factors

Richard Brecher and Zhihao Yu ()
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Zhihao Yu: Department of Economics, Carleton University,

No 20-01, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: Contrary to conventional wisdom, this paper shows that a high-wage economy can paradoxically reduce its level of aggregate unemployment by engaging in international trade with a low-wage country. We demonstrate this possibility after introducing a minimum wage into the basic specific-factor model (with immobile capital and mobile labor), even though the opposite result is known to arise in the longer-run framework of the standard Heckscher-Ohlin-Samuelson model (with both inputs mobile). Our result provides a cautionary note for public-policy discussions that promote trade barriers as a way to reduce unemployment.

Keywords: Trade; Unemployment; Minimum wage; Sector-specific factors (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2020-03-04
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Published: Carleton Economics Papers

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