Chapter 6: Scale Economies, Jobs and Wages
INTRODUCTION As we argued earlier, one channel leading to a decline in the volume of joblessness in the East Asian economies of Hong Kong, Singapore, South Korea and Taiwan in the sixties and seventies as they launched their industrialisation programme based upon selling into the world market was the ability to sell relatively labour-intensive goods. The increased demand for labourintensive goods translated into a higher wage that ﬁrms could aﬀord to pay. Juxtaposed against the wage curve, this implies a decline in the natural rate. Apart from this channel, one beneﬁt of economic integration must surely be the availability both of the wide range of consumer products as well as intermediate inputs through trade. As we pointed out before, intra-industry trade has become an increasing share of total East Asian trade ﬂows. This chapter focuses on the role played by intra-industry trade in shaping jobs and wages. It illustrates that when internal scale economies determine international specialisation, and factor proportions do not diﬀer, all countries participating in international trade gain from participating in the global economy. Gains from trade arise from a wider variety of consumption goods being made available to workers (see Hoon, 1994) and from a wider range of inputs being made available in production (see Matusz, 1996). The availability of the wider range of inputs raises the marginal productivity of labour used in production while the wider range of consumption goods satisﬁes a need for variety in consumption. The former channel raises the...
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