Chapter 10: Trade, Growth and Unemployment in Ricardo’s Essay on Profits Model
10. Trade, growth and unemployment in Ricardo’s Essay on Proﬁts model INTRODUCTION 10.1 A major theme of this book has been that international trade enlarges market size and through this channel has salutary eﬀects on real wages and jobs. In this chapter, we return to a classical model of trade, growth and unemployment and show how market size interacts with the Stolper– Samuelson eﬀect to inﬂuence jobs and wages. It draws upon recent formalisations of Ricardo’s ( 1923) Essay model. Although the formalisation of Ricardo’s theory of trade based principally on Chapter 7 of his Principles ( 1911) is static, various authors such as Burgstaller (1986), Findlay (1974) and Maneschi (1983) have developed a dynamic trade model based upon Ricardo’s ( 1923) Essay on Proﬁts. In the Essay model, the subsistence wage is treated as a parameter. If, following Leibenstein (1957), we treat the subsistence wage as a biologically determined wage that the workers require to be able to work, and we treat the labour force as a constant, we obtain a model that links trade and growth to employment expansion. Mokyr (1991, p. 189), looking at the Industrial Revolution, has suggested: In the ﬁnal analysis, then, cheap labor could have been detrimental to industrialization through a variety of mechanisms. It could and probably did mean in some places that workers were underfed and possibly handicapped in other ways. Cheap labor could mean unmotivated, quarrelsome workers, poorly adapted to the discipline and rigor of factory...
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