Income distribution and Labor movement Flashcards
(24 cards)
How does international trade affect income distribution?
Trade shifts the relative price of goods, benefiting factors used in export sectors but hurting factors in import-competing sectors.
Demans for exports is more, prices increase, wages increase, more profits for export sector.
Imported goods reduce demand for domestically produce goods, lower profits, lower wages and potential job losses.
Why doesn’t trade benefit everyone equally?
Because factors of production cannot move instantly between industries, leading to short-term job losses and wage adjustments.
Trade may create more jobs overall, but it destroys jobs in some sectors.
Workers in declining industries do not always have the skills needed for jobs in growing industries.
Businesses and workers need time to adjust, leading to temporary unemployment and lower wages.
Why is redistribution of trade gains difficult?
Although trade creates overall gains, compensating losers is politically and administratively challenging.
Why do economists support free trade despite income inequality?
Free trade raises overall economic output, and economists prefer redistributive policies (e.g., social programs) over restricting trade.
Free trade allows a country to specialize in what it does best, increasing efficiency and raising overall income.
However, income inequality can increase as some industries grow while others shrink.
Economists argue that instead of blocking trade, governments should help affected workers through redistribution policies like:
- Unemployment benefits (so workers have financial support).
- Job training programs (so workers can transition to better industries).
- Education subsidies (to improve workforce skills).
How does trade affect political decisions?
Politicians often favor protectionist policies to protect domestic workers, even when free trade is economically beneficial.
What is the “optimal trade policy” approach?
It balances the benefits of free trade with policies that support displaced workers (e.g., retraining programs, unemployment benefits).
How does trade affect job markets?
Trade shifts jobs from import-competing industries to export industries, but this transition takes time, leading to temporary unemployment.
Trade leads to job losses in industries that face import competition but creates new jobs in export industries.
However, shifting jobs is not immediate—some workers struggle to find new employment.
Why do recessions cause more unemployment than trade?
Unemployment is mainly a macroeconomic problem caused by recessions, not trade imbalances.
- Recessions happen when overall demand in the economy falls, causing businesses to cut jobs.
- Trade may shift jobs between industries, but it does not cause mass unemployment like a recession.
- Economic downturns affect all industries, while trade affects only specific sectors.
Why is trade protection not an effective solution to unemployment?
Protectionism raises prices, reduces efficiency, and fails to create long-term job growth.
- Tariffs and quotas can protect jobs in the short term by reducing imports.
- However, these policies increase prices for consumers and make domestic industries less competitive.
- In the long run, protected industries become inefficient and eventually lose jobs anyway.
What policies are better at reducing unemployment?
Macroeconomic policies (e.g., fiscal stimulus, job training) are more effective than trade barriers.
The best way to reduce unemployment is to grow the economy, not restrict trade.
Effective policies include:
* Fiscal stimulus (government spending to boost demand).
* Job training programs (to help workers shift industries).
* Lower interest rates (to encourage investment and hiring).
What is the U.S. Trade Adjustment Assistance (TAA) program?
It provides extended unemployment benefits and tuition assistance to workers displaced by trade.
Why is productivity growth a bigger factor than trade in job losses?
Automation and technology reduce the need for factory workers even if trade is restricted.
What are the three main types of factor movements in trade?
- Capital flows (international investment).
- Multinational corporations (FDI).
- Labor migration (workers moving between countries).
Why do workers migrate internationally?
They move to countries with higher wages and labor shortages.
There are other reasons too
What happens to wages in the home country when workers emigrate?
Wages increase because labor supply shrinks, benefiting remaining workers.
What happens to wages in the host country when immigrants arrive?
Wages decrease due to higher labor supply, benefiting employers but harming native workers.
Why don’t wages fully equalize across countries?
Immigration restrictions, language barriers, and moving costs prevent full wage convergence.
In theory, workers should move to high-wage countries, equalizing wages.
However, legal, social, and financial barriers prevent this:
* Immigration laws limit worker movement.
* Cultural differences make relocation difficult.
* Families and personal ties discourage migration.
Who benefits from immigration?
High-skilled workers and employers benefit from cheaper labor and economic growth.
Who loses from immigration?
Low-skilled native workers face more competition and lower wages.
How does immigration affect wage inequality?
It widens the wage gap, benefiting high earners more than low earners.
Why do real wages remain unequal globally?
Differences in technology, education, and immigration laws maintain wage gaps.
How does the Specific Factors Model explain trade effects?
Factors specific to export industries gain, while factors in import-competing industries lose.
What is the argument for free trade despite job losses?
Free trade raises national income, and redistribution policies can compensate losers.
Why do economists prefer redistribution over protectionism?
Trade barriers hurt the entire economy, while redistribution targets affected workers directly.
