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Average wages in the US exportable sector

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3. Use the Heckscher-Ohlin/factor proportions framework with two factors, skilled and unskilled labor, to evaluate the following arguments. Suppose X is more skill intensive than Y. Suppose the US is more skill abundant than the rest of the world. Explain your answer.

a) Average wages are higher in the US exportable sector.
b) This suggests that there would be benefits to the economy of subsidizing employment in production of exportables (the high average wage sector).
c) A subsidy for the employment of unskilled labor in the sector with high average wages raises the market wage for unskilled workers.

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Average wages in the US exportable sector are assessed in the solution.

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Answer:
a) Average wages are higher in the U.S. exportable sector.

Average wage are higher in the U.S. exportable sector because an increase in trade between the U.S. and the rest of the world would lead to increase in the goods and services exported to the rest of the world due to this the price of good and services exported from rest of the world in the US will decline. At the same time wage rate of the unskilled labor (Y) in the U.S. will decline along with the increase ...

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  • Bsc, Madras University
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