Trade, Jobs and Wages
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Trade, Jobs and Wages

Hian Teck Hoon

The world’s increasing integration through trade and the persistence of high unemployment in Europe, and other areas of the world, highlight the need to understand the implications of free trade for unemployment. Trade, Jobs and Wages analyses how employment levels and real wages are affected by international trade. Popular trade theory disregards the impact of free trade on the rate of unemployment, since it assumes full employment at the outset. By focusing on the determinants of the natural rate of unemployment, Professor Hoon places an emphasis on real, as opposed to monetary, factors in accounting for long term trends in wages and unemployment.
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Chapter 6: Scale Economies, Jobs and Wages

Hian Teck Hoon


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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