The Impact of Tradeon Wages: What If Countries Are Not Small?
IMF Working Papers, June 1, 2006
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Bibliographic details
- Authors: Ichiro Tokutsu, Mika Saito
- Published: June 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864151.001
Summary
- Paper examines the effect of trade on the relative wage of less-skilled labor through its effect on world prices, departing from the small open economy assumption where world prices are exogenous.
- Uses numerical simulation of a general equilibrium model to study the effects of abolishing existing tariffs under the assumption that each member country is large enough to affect the prices of goods and services produced in the region.
- Key result: the responsiveness of prices plays an important role in easing a possible adverse effect of trade on relative wages.
Authors and Publication
- Authors: Ichiro Tokutsu, Mika Saito
- Date: June 1, 2006
- Series: Working Paper No. 2006/155
- Volume: 2006
- Issue: 155
- Pages: 40
- DOI: https://doi.org/10.5089/9781451864151.001
- ISBN: 9781451864151
- ISSN: 1018-5941
- Stock No: WPIEA2006155
Methodology & Data
- Model: General equilibrium model calibrated and numerically simulated.
- Data: 1995 international input-output data for APEC member countries.
- Counterfactual policy analyzed: abolishing existing tariffs.
- Key modeling assumption: each APEC member country is large enough to affect regional prices (prices endogenous to policy changes).
Key Findings
- Abolishing tariffs when countries are sufficiently large alters world/region prices rather than leaving them exogenous.
- The extent to which prices respond to trade liberalization materially influences the impact on the relative wage of less-skilled labor.
- Greater price responsiveness can mitigate a possible adverse effect of trade on relative wages.
Policy Implications and Interpretation
- Evaluations of trade liberalization’s distributional effects should account for price feedbacks when countries are large enough to influence regional prices.
- Policy assessments that rely on the small open economy assumption (fixed world prices) may overstate adverse impacts on less-skilled wages if price responsiveness is ignored.
- Consideration of input-output linkages and regional price adjustments is important when designing tariff reform and assessing labor market outcomes.
Subjects and Keywords
- Subject: Imports, International trade, Labor, Skilled labor, Tariffs, Taxes, Wage gap, Wages
- Keywords: excess demand, fall result, Imports, input price, International Trade, price change, price equation, price movement, Skilled labor, Tariffs, transportation cost, unit import cost, vector of goods, Wage gap, Wages, WP
Source: IMF Working Paper — Ichiro Tokutsu and Mika Saito, "The Impact of Tradeon Wages: What If Countries Are Not Small?", June 1, 2006; Working Paper No. 2006/155; DOI: https://doi.org/10.5089/9781451864151.001.