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    Jessalynn's Avatar
    Jessalynn Posts: 3, Reputation: 1
    New Member

    Apr 29, 2006, 10:57 AM
    Cheap Foreign Labor
    :eek: 7. The “cheap foreign labor” argument claims that trade with low wage countries will reduce living standards in the US.

    a. Explain why the text authors feel this argument is wrong.

    b. The text refers to the example of Brazilian coffee. If the US had a coffee growing industry before the US starting to import Brazilian coffee, what do the text authors assume will happen to the US coffee workers who lose their jobs to foreign competition?
    kp42484's Avatar
    kp42484 Posts: 39, Reputation: 16
    Junior Member

    Apr 29, 2006, 01:06 PM
    I will take an answer from a textbook of mine:
    "... increased international trade led to lower US wages and employment. The reason was that trade took the form of imports that led US residents to substitute away from US-produced products in favor of products from abroad. The resulting decline in the product price reduced the marginal revenue of labor, causing US companies to reduce their demand for labor. Of course, greater openness to intl. trade can also induce more US companies to export goods and services abroad. As more domestic firms enter foreign markets, the demand for US workers rises at any given wage rate. This tends to push the market wage upward in labor markets in which these firms compete for labor. In addition, employment rises in these labor markets... If we imagine that all other things are constant, then greater openness to imports tends to depress domestic wages and employment. An increased propensity to export goods and services tends to raise domestic wages and employment, however."

    Daniels, Joseph P. and VanHoose, David D.Global Economic Issues and Policies. Southwestern, Thomson Learning. 2004.

    As the rest of the chapter explores, this is a complicated issue and there are many other factors to take into consideration. Furthermore, international trade tends to cause relative wages in the trading countries to converge. But one has to differentiate between a myriad of factors such as education, skilled vs. unskilled labor, different policies, different financial and economic states of each nation, population... the list goes on.

    Textbooks spend whole chapters exploring each possible solution to your questions. At the risk of sounding harsh, read your textbook again and try to understand why they make the claims they do. Try to make it relevant to what the US is experiencing today. If nothing else, try reading the news to see how trade policies affect jobs and wages.

    Hope this helps.

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