Exploring the Link Between Trade Openness & Industrial Pay Inequality

This essay analyzes the relationship between trade openness and industrial pay inequality, using data from Japan and Australia. The analysis incorporates the Stolper-Samuelson theorem to explain how trade policies impact factor prices and wages. The study finds a strong positive correlation between trade openness and industrial pay inequality in Australia, while Japan shows a weaker correlation, possibly due to government intervention in export industries. The essay discusses how increased trade openness, driven by reduced tariffs and trade liberalization, can affect the demand for skilled labor and subsequently influence wage inequality within a country. Desklib provides access to a variety of solved assignments and past papers to support student learning and research.

Running head: INTERNATIONAL TRADE
Trade openness versus Industrial pay Inequality
Name of the Student
Name of the University
Author Note

Figure1: The graph below shows the openness versus industrial pay inequality for
Japan (Antras, Chor, Fally, and Hillberry, 2012).
Figure 1: openness Vs industrial inequality pay in Japan
The graph above shows the openness versus industrial pay inequality for Japan for
which data was collected from the UTIP-UNIDO. The graph also shows how industrial pay
inequality varies from year to year and the trade was relatively stable for all the years
indicated.
Figure2; The graph below shows the openness versus industrial pay inequality
Australia(Antras, Chor, Fally, and Hillberry, 2012).
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The above figure shows the trade trend openness and industrial pay inequality for
Australia. The World Bank data defined Trade Openness as the amount of trade expressed as
a percentage of the Gross Domestic Product (Antras, Chor, Fally, and Hillberry, 2012). The
graph shows the trade openness to be varying from one year to another, however, the
industrial pay inequality in some years is below the starting point (0) (Wahiba, 2013).
Interpretation of the results.
Using the excel sheet, the trade openness and industrial pay inequality was correlated
together using the collected data from the UTIP-UNIDO. The correlation for Australiahas
been calculated as 0.67500 (Antras, Chor, Fally, andHillberry, 2012). The value implies that
there is a strong and positive correlation between Australia’s industrial pay inequality and the
trade openness. The graph shows an increase in the figures from the year of 1990 to
2005(Antras, Chor, Fally, and Hillberry, 2012). The increase indicates that the international
trade has increased with an increase in the industrial inequality pay. Since the correlation is
greater than 0.5 (critical value), then it is true to say that trade openness has a significant
impact on the industrial inequality pay. As exports increase, demand for skilled labor force
also increases which in turn increases the wages in those countries(Wahiba, 2013).
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On the other hand, there is a weak and positive correlation between Japan industrial
inequality pay and trade openness which is 0.0550. The figure above shows how an increase
in trend fluctuates with the international trade (Jaumotte, Lall, and Papageorgiou, 2013).
Hence, it is clear from the graph that the industrial inequality pay in Japan is not so
much influenced by the trade openness. It is due to the authority to industries in exporting by
the government of Japan. From the graph, both variables are seen to have moved in the same
direction from 1990 to 2000. However, both variables move in different direction after that
period (Wahiba, 2013).
.
The analysis of the data using Stolper- Samuelson theorem
The theory of Samuelson, explores the relationship between the price of factors and
output price like the capital and wage costs (Joachim and Wagner, 2018). It states that the
return from the factor engaged in production of the good increases as the relative output price
increases. The real wage tends to increase as labor is intensively used in the production
although both unskilled and skilled labor tend to exist in an economy. In many economies,
unskilled labor has got low productivity and hence low wage is paid to them as compared to
the skilled labor (Wahiba, 2013). The trade openness mainly depends on the reduction of
trade tariffs such as removal for trade liberalization policies and other trade licenses. In most
cases, prices for exported goods increase as result of an increase in the export sector of the
nation which rises the input demand such as capital and labor (Jaumotte, Lall, and
Papageorgiou, 2013).From the equation that; P = bw + ar; where ‘r’ is the price of capital and
‘w’ the wage of the worker(Jaumotte, Lall, and Papageorgiou, 2013).
From using low costs which uses a relatively low factor, the sector initially expands.
As a result of trade openness, the raising demand for the input used intensively, increases the
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prices for that particular factor. For stance, when a nation intensively uses labor for
production, the openness of trade will be forced to raise the relative the prices of labor. This
will imply that the factor prices will be equalized by the wage increase across the nation
(Joachim and Wagner, 2018).
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References
Antras, P., Chor, D., Fally, T. and Hillberry, R. (2012). Measuring the upstreamness of
production and trade flows. The American Economic Review, 102(3), pp.412-416.
Jaumotte, F., Lall, S. and Papageorgiou, C., (2013). Rising income inequality: technology, or
trade and financial globalization? IMF Economic Review,61(2), pp.271-309.
Joachim, Wagner. (2018). Temporary exports and characteristics of destination countries:
first evidence from German transaction data. Economics, the Open- Access E-Journal.
Vol.12, pg.54.Retrievedfrom:
http://www.economicsejournal.org/economics/journalarticles/2018-54
Nasfi Fkili Wahiba. (2013). Trade Openness and Inequality. Journal of Knowledge
Management, Economics and Information Technology. Scientific papers. Higher
Institute of Management, Gabes University, Tunisia.
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