Transcript Document

Global Economic Issues
and Policies
First edition
Chapter 10
Can Globalization
Lift All Boats?
PowerPoint Presentation by Charlie Cook
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
1. What factors influence the demand for a
nation’s labor resources?
2. How are market wage rates determined, and
how can increased international trade affect
the wages earned by a nation’s workers?
3. What are the implications of the factor
proportions approach to international trade for
how trade affects workers’ earnings?
4. Why do labor and capital resources often flow
across national borders?
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
10–2
5. How does greater openness to international
trade affect wages and economic growth in
developing nations?
6. What are the pros and cons of increased
capital flows to developing nations?
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
10–3
International Trade and Wages
• The Alleged “Trade Threat” From Developing
Nations
 Politicians and union leaders have blamed greater
U.S. earnings inequality on international trade.
 Wages of manufacturing workers residing in other
nations, including developing and emerging countries,
have increased relative to the earnings of U.S.
manufacturing workers.
 Free trade induces nations to specialize in producing
goods for which they have a comparative advantage.
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10–4
Figure 10-1a
Shares of U.S. Trade for Major Trading Partners
Source: International Monetary Fund, Direction of
Trade Statistics and U.S. Department of Commerce.
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10–5
Figure 10-1b
Shares of U.S.
Trade and
Wages of
Manufacturing
Workers as a
Percentage of
Wages of U.S.
Manufacturing
Workers
Source: International Monetary Fund, Direction of
Trade Statistics and U.S. Department of Commerce.
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10–6
Wages and International Trade
• International Wage Differences
 There has been persistence in the compensation
differences.
 Since 1990 manufacturing workers in seven nations,
and especially in Japan, have earned higher hourly
rates of compensation relative to the U.S. level.
 Criticism of the hourly compensation indexes:
 Index
values do not take into account price differences
across nations that affect the purchasing power of
workers’ wages.
 The indexes also apply only to manufacturing workers’
compensation.
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10–7
Figure 10-2
Indexes of
Hourly
Compensation
Costs in
Manufacturing
for Selected
Nations
Source: U.S. Bureau of
Labor Statistics.
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10–8
Wages and International Trade (cont’d)
• The Marginal Revenue Product of Labor
 The additional revenue generated by employing an
additional unit of labor; also equal to marginal
revenue times the marginal product of labor.
• Marginal Product of Labor
 The additional output generated by employing the
next unit of labor.
• Marginal Revenue
 The additional revenue a firm earns from selling an
additional unit of output.
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10–9
Table 10-1
Calculating the Marginal Revenue Product of Labor
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10–10
Wages and International Trade (cont’d)
• Law of Diminishing Marginal Returns
 An economic law stating that when more and more
units of a factor of production such as labor are added
to fixed amounts of other productive factors, the
additional output for each new unit employed
eventually declines.
 A profit-maximizing
firm hires workers up to the point
where the marginal product of labor is equal to the
wage rate that it pays the next worker hired.
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10–11
Figure 10-3
The Demand for Labor
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10–12
Wages and International Trade (cont’d)
• Market Wage Rate
 The wage rate at which the quantity of labor supplied
by all workers in a labor market is equal to the total
quantity of labor demanded by firms in that market.
 A fall in the price of firms’ products (due to less
demand or increased supply) causes both a decline in
the market wage rate and a decrease in the total
quantity of labor employed.
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10–13
Table 10-2
Determining the Market Wage Rate
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10–14
Table 10-3
Determining the Market Wage Rate
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10–15
Labor and Capital Mobility
• Situations in which countries have different
factor proportions for skilled and unskilled labor:
 International trade will tend to cause the relative
wages of trading countries’ workers possessing
similar skills to converge.
 Trade with another country helps a country’s unskilled
workers to “gain ground” relative to the trading
country’s skilled workers.
 Trade with another country causes a country’s
unskilled workers to “lose ground” relative to skilled
workers in their own country.
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10–16
Figure 10-4
The LaborMarket Effects
of a Decline in
Product Price
Induced by
Increased
International
Trade
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10–17
Figure 10-5
The Ratio of the Average Wage of U.S. College Graduates to the
Average Wage of U.S. High School Graduates
Source: Lawrence Katz, “Technological Change, Computerization, and the Wage Structure,” in Understanding the Digital Economy,
Erik Brynjolfsson and Brian Kahin, eds., Cambridge, Mass.: MIT Press, 2000, 217–246; authors’ estimate for 2000.
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
10–18
International Trade and Labor and Capital
Flows: The Market for Capital
• Marginal Revenue Product of Capital
 The additional revenue generated by using an
additional unit of capital.
• Marginal Product of Capital
 The additional output generated by using an
additional unit of capital.
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10–19
Figure 10-6
The Labor-Market Effects of a Decline in Product Price Induced by
Increased International Trade
Source: Sandra Black and Elizabeth Brainerd, “Importing Equality? The Effects of Increased Competition
on the Gender Wage Gap,” Working Paper, Federal Reserve Bank of New York, March 1999.
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10–20
Limitations of the Factor Proportions
Approach
• Inter-industry trade
 International trade of completely distinguishable
goods and services.
• Intra-industry trade
 International trade of goods or services that are
closely substitutable.
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10–21
Figure 10-7a
Immigration into the United States
Source: Pia Orrenius and Alan Viard, “The Second Great Migration: Economic and Policy Implications,
”Federal Reserve Bank of Dallas Southwest Economy, May/June 2000, 1–8; and authors’ estimates.
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
10–22
Figure 10-7b,c
Immigration into the United States (cont’d)
Source: Pia Orrenius and Alan Viard, “The Second Great Migration: Economic and Policy Implications,
”Federal Reserve Bank of Dallas Southwest Economy, May/June 2000, 1–8; and authors’ estimates.
Copyright © 2004 South-Western/Thomson Learning. All rights reserved.
10–23
Figure 10-8
Population and Trade Shares of Selected World Regions
Source: World Bank, World Development Indicators, and
International Monetary Fund, Direction of Trade Statistics.
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10–24
Table 10-4
Unit Labor Costs in Selected Developing Countries
Source: United Nations Trade and Development Report.
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10–25
Figure 10-9a
Physical and Online Population Distributions
Source: Organization for Economic Cooperation and Development
and International Telecommunications Union.
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10–26
Figure 10-9b
Internet Access
Prices for
Selected
Regions and
Nations
Internet Monthly Access
Prices for 20 Hours of
Off-peak Use, Selected
Economies (U.S. dollars)
Source: Organization for Economic Cooperation and Development
and International Telecommunications Union.
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10–27
Figure 10-10
Trade Barriers versus Economic Growth
Source: World Bank, World Development Indicators and Competitiveness Indicators, 2002.
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10–28
Figure 10-11a
Private Capital Flows in Developing Nations
Source: International Monetary Fund.
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10–29
Figure 10-11b
National Income Growth in Developing Nations
Source: International Monetary Fund.
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10–30
Figure 10-12
Shares of Foreign Direct Investment in Developing Regions
Source: United Nations, Trade and Development Report.
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10–31
Questions and Problems - 1)
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10–32