Trade and Income Inequality

Trade and Income Inequality - Cutting imports will lead to...

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Trade and Income Inequality Trade has been blamed for the growing gap between the wages of skilled and unskilled workers in the U.S. The rising wage differential should lead employers to decrease the proportion of skilled workers and increase the proportion of unskilled workers. In reality, nearly all industries have employed an increasing proportion of skilled workers. Leontief Paradox If the U.S. is capital abundant, it should be exporting capital-intensive goods and importing labor-intensive goods. Leontief found that the U.S. was exporting labor-intensive goods and importing capital-intensive goods. The U.S. is actually abundant in skilled labor and farmland. This is consistent with the U.S. pattern of trade. Trade and Jobs U.S. export industries involve more jobs than do U.S. import-competing industries.
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Unformatted text preview: Cutting imports will lead to a fall in exports. 1. exports use importable inputs 2. foreigners who lose our business cannot buy so much from us 3. foreign governments may retaliate Therefore, raising trade barriers will bring a net loss of U.S. jobs. Lowering existing trade barriers will bring a net job loss because current barriers are concentrated in the most labor-intensive import competing industries such as textiles and footwear. Trade and Technology When a product is invented it needs to be perfected and requires advanced technological inputs. Production is best done in the country where the product was invented. Once a product becomes standardized and knowledge plays less of a role and production moves overseas eventually to cheap labor LDC's....
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