TRADE-INDUCED REDUCTION IN UNEMPLOYMENT OF A HIGH-WAGE ECONOMY: A MINIMUM-WAGE MODEL WITH COUNTRY-SPECIFIC TECHNOLOGY

Richard Brecher and Zhihao Yu ()

No 21-04, Carleton Economic Papers from Carleton University, Department of Economics

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.

Keywords: Trade; Unemployment; Minimum wage; Country-specific technology (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2021-05-14
New Economics Papers: this item is included in nep-cwa, nep-int and nep-ore
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Published: Carleton Economics Papers

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Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:21-04

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