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Trade patterns, unemployment and growth
This paper analyses the implications of a minimum wage in an open economy two-sector model where the effect of growth on trade and unemployment is explicitly determined. The first-best policy is a wage subsidy to all employment while the second-best policy is a production tax cum subsidy. In the absence of policy intervention it is shown that growth in the short run results in decreasing unemployment for the home country if it is specialized in consumption goods or incompletely specialized provided that the minimum wage is binding. If the economy is specialized in investment goods, then unemployment may increase initially but as growth continues the minimum wage no longer remains binding and full employment is restored. In the long run by examining the dynamic interaction between trade and growth it is possible for the economy to be incompletely specialized with unemployment. If the economy specializes in consumption goods, it is possible for the economy to attain full employment.
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Journal
Journal of international trade & economic developmentVolume
3Issue
3Pagination
229 - 248Publisher
RoutledgeLocation
Abingdon, Eng.Publisher DOI
ISSN
0963-8199eISSN
1469-9559Language
engPublication classification
C1.1 Refereed article in a scholarly journal; C Journal articleCopyright notice
1994, RoutledgeUsage metrics
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