Class Lecture #24 - 10/28

1.) Empirical evidence that trade does not cause job loss..... Does the trade deficit cause maunfacturing job loss? NO! Because in the agricultural sector the share of jobs has also gone down while there has actually been a trade surplus. So both sectors have seen a decrease in the share of jobs even though one experienced a trade deficit and the other experienced a surplus.

2.) Why doesn't trade cause job loss? Because when you trade, 2 things happen:
- Imports are paid for with exports
- You get RICHER.... so more jobs
So when you add it up... net zero jobs + more jobs = MORE JOBS!

3.) Cheap foreign labor in China...Better than US?
(Wages/Marginal Product of Labor) for China vs. (Wages/Marginal Product of Labor) for U.S.
$8 per hr/4 shirt per hr = $2/shirt (China)
$20 per hr/20 shirts per hr = $1/shirt (US)

So the U.S. an absolute advantage in making shirts. But what about comparative advantage?
China: $8/unit U.S.: $0.50/unit
U.S. has an absolute AND comparative advantage in making shirts.