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Trade‐induced reduction in unemployment of a high‐wage economy

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  • Richard A. Brecher
  • Zhihao Yu

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 labour‐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.

Suggested Citation

  • Richard A. Brecher & Zhihao Yu, 2023. "Trade‐induced reduction in unemployment of a high‐wage economy," The World Economy, Wiley Blackwell, vol. 46(10), pages 2983-2989, October.
    • Handle: RePEc:bla:worlde:v:46:y:2023:i:10:p:2983-2989
    DOI: 10.1111/twec.13481
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    References listed on IDEAS

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