Congratulations to Professor Richard Brecher and Professor Zhihao Yu! Their paper titled “Unemployment Effects of Trade with a Low-Wage Country: A Minimum-Wage Model with Sector-Specific Factors” has been accepted for publication in the Review of International Economics – a leading journal in the field of International Economics.
Contrary to conventional wisdom, this paper shows that a high-wage economy can paradoxically reduce its level of aggregate unemployment by engaging in international trade with a low-wage country. We demonstrate this possibility after introducing a minimum wage into the basic specific-factor model (with immobile capital and mobile labor), even though the opposite result is known to arise in the longer-run framework of the standard Heckscher-Ohlin-Samuelson model (with both inputs mobile). Our result provides a cautionary note for public-policy discussions that promote trade barriers as a way to reduce unemployment.