Lecture 4: Can Globalization Lift all Boats

1
Lecture 4Can Globalization Lift all Boats?
2
Shares of U.S. Trade for Major Trading Partners
3
Wages of Manufacturing Workers as Percentage of
Wages of U.S. Manufacturing Workers
4
Wages and International Trade

• International Wage Differences
• There has been persistence in the compensation
  differences.
• Since 1990 manufacturing workers in seven
  nations, and especially in Japan, have earned
  higher hourly rates of compensation relative to
  the U.S. level.
• Criticism of the hourly compensation indexes
• Index values do not take into account price
  differences across nations that affect the
  purchasing power of workers wages.
• The indexes also apply only to manufacturing
  workers compensation.

5
Indexes of Hourly Compensation Costs in
Manufacturing for Selected Nations
6
Wages and International Trade (contd)

• The Marginal Revenue Product of Labor
• The additional revenue generated by employing an
  additional unit of labor also equal to marginal
  revenue times the marginal product of labor.
• Marginal Product of Labor
• The additional output generated by employing the
  next unit of labor.
• Marginal Revenue
• The additional revenue a firm earns from selling
  an additional unit of output.

7
Wages and International Trade (contd)

• Market Wage Rate
• The wage rate at which the quantity of labor
  supplied by all workers in a labor market is
  equal to the total quantity of labor demanded by
  firms in that market.
• A fall in the price of firms products (due to
  less demand or increased supply) causes both a
  decline in the market wage rate and a decrease in
  the total quantity of labor employed.

8
Labor and Capital Mobility

• Situations in which countries have different
  factor proportions for skilled and unskilled
  labor
• International trade will tend to cause the
  relative wages of trading countries workers
  possessing similar skills to converge.
• Trade with another country helps a countrys
  unskilled workers to gain ground relative to
  the trading countrys skilled workers.
• Trade with another country causes a countrys
  unskilled workers to lose ground relative to
  skilled workers in their own country.

9
The Labor-Market Effects of Increased
International Trade
10
Immigration into the United States
11
Population and Trade Shares of Selected World
Regions
12
Unit Labor Costs in Selected Developing Countries
13
Trade Barriers versus Economic Growth
14
Freeman Are your wages set in Beijing?

• Are wages of low skilled workers determined by
  competition from less developed countries?
• What are the pieces of economic evidence that
  Freeman cites for the effect of trade on wages?
• If trade has contributed to the impoverishment of
  low skilled workers, does this warrant support
  for protectionism?