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Income inequality between skilled and unskilled workers in advanced countries Free essay! Download now

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Income inequality between skilled and unskilled workers in advanced countries

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Income inequality between skilled and unskilled workers when a country opens up to international trade.

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Economics of Globalisation



Income inequality between skilled and unskilled workers in the advanced countries has widened sharply in the recent decades. Many people claim that increasing volume of trade with developing countries is responsible for this phenomenon. Critically evaluate this claim, drawing upon your knowledge of the theory of international trade.



Table of Contents

Introduction

Problem of International Trade

Latin America Data Representation

Ricardian View
Critique

Heckscher-Ohlin Model
Stolper Samuelson Theorem

Trade Barriers

Graphical Representation of Wage Distribution

Factor Content Approach

Conclusion

Opinion








1. Introduction

Countries trade internationally for a number of reasons. One of the main reasons being that they do not possess enough resources or capability to be totally self-sufficient. (Meet their own needs and wants). In the modern world, most countries would not be able to function without high levels of international trade. Goods and services tend to be imported for differing reasons. E.g. Better quality materials, cheaper to import than to produce domestically, market diversification.
This concept of globalisation is to simply create a world market place where every consumer (country) benefits and thus quality of life is improved. This is important for a number of social economic factors such as poverty reduction, lesser crime rates and greater choice.
2. Problem of International Trade
Adam Smith, documented in his book “The Wealth of Nations” in 1776, that for markets to succeed they must first “benefit from the division of labour and specialization.” However, in modern times, countries benefit from this trade at varying speeds. A new problem arises where; trade between a developed and a developing country may cause some workers to lose out due to market forces.
A country’s openness to international trade has been argued to cause a substantial impact on the distribution of income in developed countries. Openness to trade results in a competitive situation where comparative advantage means everything. Empirical support for the view that trade openness promotes economic growth can be found in a number of studies though trade does not appear to be a particularly robust predictor of economic growth (Ravallion, 2004).
Over the last number of decades there has been a natural substantial decrease in the demand for unskilled labourers compared to the demand for skilled labourers. Henceforth, this creates a historical income inequality and thus an increase in the number of unemployed unskilled workers (Freeman 1994). Additionally it has been reported that the employment in the manufacturing sector of most developed countries has fallen “…much faster than would have been predicted from its earlier trend” (Sachs and Shatz, 1994). Sachs and Shatz also concluded that the “changes in labour markets have coincided with rapid growth of imports from unskilled lesser developed economies.”
“The long run impact of trade is described as when there is a change in the goods a country ...

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