International Trade and Its Effects on Jobs, Wages, and Working Conditions

Self-Check Questions

Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

Hint:

Trade barriers raise the price of goods in protected industries. If those products are inputs in other industries, it raises their production costs and then prices, so sales fall in those other industries. Lower sales lead to lower employment. Additionally, if the protected industries are consumer goods, their customers pay higher prices, which reduce demand for other consumer products and thus employment in those industries.

Explain how trade barriers raise wages in protected industries by reducing average wages economy-wide.

Hint:

Trade based on comparative advantage raises the average wage rate economy-wide, though it can reduce the incomes of import-substituting industries. By moving away from a country’s comparative advantage, trade barriers do the opposite: they give workers in protected industries an advantage, while reducing the average wage economy-wide.

How does international trade affect working conditions of low-income countries?

Hint:

By raising incomes, trade tends to raise working conditions also, even though those conditions may not (yet) be equivalent to those in high-income countries.

Do the jobs for workers in low-income countries that involve making products for export to high-income countries typically pay these workers more or less than their next-best alternative?

Hint:

They typically pay more than the next-best alternative. If a Nike firm did not pay workers at least as much as they would earn, for example, in a subsistence rural lifestyle, they many never come to work for Nike.

How do trade barriers affect the average income level in an economy?

Hint:

Since trade barriers raise prices, real incomes fall. The average worker would also earn less.

How does the cost of “saving” jobs in protected industries compare to the workers’ wages and salaries?

Hint:

Workers working in other sectors and the protected sector see a decrease in their real wage.