Factor Price Equalisation and Trade Patterns with Unemployment

Factor Price Equalisation and Trade Patterns with Unemployment

This paper extends the technique of integrated equilibrium analysis to consider a trading world with unemployment due to a wage floor. Unlike previous models with wage floors, world goods prices and patterns of production are endogenous. This more general analysis of a trading world allows questions of the effect of unemployment on the likelihood of factor price equalisation and the factor content of trade to be addressed. Results are relevant to the recent debates over trade and wage inequality/unemployment, to empirical tests of factor proportions theories of trade, and to the international harmonisation of labour standards. (JEL Classifications: F11, F16)