205 research outputs found
Foreign Ownership and the Theory of Trade and Welfare
Some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country. Under conditions that would ensure a national welfare gain if\u27 foreign ownership were absent, international transfer, economic growth, or tariff policy might cause a national welfare loss in the presence of foreign ownership. The techniques developed could be applied to other domestic distinctions (such as those based on race, sex, age, or ethnicity) and to the theory of\u27 customs unions in a three-country world
Unemployment Effects of Trade with a Low-Wage Country: A Minimum-Wage Model with Sector-Specific Factors
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
The Global Correspondence Principle: A Generalization
This paper generalizes the Global Correspondence Principle by extending, in two major ways, Paul Samuelson\u27s 1971 analysis of the exchange rate response to an international purchasing-power transfer. We analyze the price effect of a shift in any parameter, not necessarily a transfer. We then explore the resulting adjustments in any nonprice variable such as we/fare. As our analysis shows, the direction of these adjustments depends neither on whether they are small or large nor on whether equilibrium is locally stable or unstable
Employment Gains from Minimum-Wage Hikes under Perfect Competition: A Simple General-Equilibrium Analysis
Contrary to conventional wisdom, higher minimum wages may lead to greater levels of
employment under perfect competition. We demonstrate this possibility in a simple generalequilibrium
model with two goods produced by two factors and consumed by two representative
households. Within our model, hiking a minimum wage redistributes income between
heterogeneous consumers. This redistribution may create an excess demand for the laborintensive
good, and hence increase employment to restore equilibrium, despite the fact that every
firm becomes less labor intensive
Unemployment and Income-Distribution Effects of Economic Growth: A Minimum-Wage Analysis with Optimal Saving
Theoretically and numerically, we analyze the unemployment and income-distribution effects of economic growth, in a model with optimal saving (investment) and a minimum wage for unskilled labor. Within this three-factor model (including skilled labor), an exogenous rise in the growth rate increases unemployment if capital and unskilled labor are complements (versus substitutes), implying a trade-off between (faster) growth and (lower) unemployment. We also show how the growth rate affects the skill premium and factor shares of national income, providing little support for Piketty’s (2014) controversial thesis that capital’s share is higher when growth is slower
A Minimum-Wage Model of Unemployment and Growth: The Case of a Backward-Bending Demand Curve for Labor
We add a minimum wage and hence involuntary unemployment to a conventional two-sector
model of a perfectly competitive economy with optimal saving and endogenous growth. Our
resulting model highlights the possible case of a backward-bending demand curve for labor,
along which a hike in the minimum wage might increase total employment. This possibility
provides theoretical support for some controversial empirical studies, which challenge the
textbook prediction of an inverse relationship between employment and the minimum wage. Our
model also implies that a minimum-wage hike has negative implications for both the growth rate
and lifetime utilit
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