Rodr ıguez clare no mobility february 3 2020 2

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Rodr´ ıguez-Clare No Mobility February 3, 2020 2 / 24
Immobility and wages What happens if workers are stuck in their current sectors? Now wages can be different! Rodr´ ıguez-Clare No Mobility February 3, 2020 2 / 24
Immobility and wages What happens if workers are stuck in their current sectors? Now wages can be different! We use w W and w C for wage for workers in the wheat and the cloth sectors, and allow w W 6 = w C Rodr´ ıguez-Clare No Mobility February 3, 2020 2 / 24
Immobility and wages What happens if workers are stuck in their current sectors? Now wages can be different! We use w W and w C for wage for workers in the wheat and the cloth sectors, and allow w W 6 = w C Can have w W > w C because workers in the cloth sector cannot move to the wheat sector to get the higher wage there. Rodr´ ıguez-Clare No Mobility February 3, 2020 2 / 24
Immobility and wages What happens if workers are stuck in their current sectors? Now wages can be different! We use w W and w C for wage for workers in the wheat and the cloth sectors, and allow w W 6 = w C Can have w W > w C because workers in the cloth sector cannot move to the wheat sector to get the higher wage there. Could also have w W < w C Rodr´ ıguez-Clare No Mobility February 3, 2020 2 / 24
Setting the stage Focus on Home Rodr´ ıguez-Clare No Mobility February 3, 2020 3 / 24
Setting the stage Focus on Home Assume that autarky equilibrium has w W = w C = w A Rodr´ ıguez-Clare No Mobility February 3, 2020 3 / 24
Setting the stage Focus on Home Assume that autarky equilibrium has w W = w C = w A Then we have standard autarky equilibrium with w A / P A W = MPL W = 4 w A / P A C = MPL C = 2 Rodr´ ıguez-Clare No Mobility February 3, 2020 3 / 24
Setting the stage Focus on Home Assume that autarky equilibrium has w W = w C = w A Then we have standard autarky equilibrium with w A / P A W = MPL W = 4 w A / P A C = MPL C = 2 As before, we have (in Home) MPL C / MPL W = 1 / 2 < 2 / 3 = P W / P C Rodr´ ıguez-Clare No Mobility February 3, 2020 3 / 24
With mobility (review) If trade opens up and there is mobility then all workers move to the wheat sector (cloth sector shuts down) Real wages in terms of wheat do not change. Why? Rodr´ ıguez-Clare No Mobility February 3, 2020 4 / 24
With mobility (review) Real wage in terms of cloth increases. Why? Rodr´ ıguez-Clare No Mobility February 3, 2020 5 / 24
With mobility (review) Conclusion: real wage in terms of wheat does not change, and in terms of cloth increases, so all workers gain Rodr´ ıguez-Clare No Mobility February 3, 2020 6 / 24
No mobility - workers in the wheat sector Assume workers stuck where employed in autarky. Consider first workers employed in wheat sector under autarky. What happens to their real wage in terms wheat and cloth? Rodr´ ıguez-Clare No Mobility February 3, 2020 7 / 24
No mobility - workers in the cloth sector Now consider workers that were employed in cloth sector.

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