Comparative Advantage And The Effects On The Low-Skilled Workers (Essay Sample)
This assignment is SHORT – no more than 2-3 pages, not including graphs (i.e., the graphs do not factor in page count). In this short paper, you are to state the basics of the economic theory underlying the article/topic you have chosen and to explain why the evidence you have reviewed – with citations – supports your position. For example, suppose my research question were, ‘What are the effects of importing labor-saving capital/technology from the North (generally but not very precisely, North America and Europe) on the distribution of income in labor-abundant India?' I might write a brief summary of the theory behind profit-maximization (focusing on the firm's decision to use inputs to the point that equates the ratio of marginal product to input unit cost across inputs) and what labor-saving capital does to the demand for labor. Then I would use the evidence from the 3-4 articles I surveyed to show what impact this has had (empirically, using real-world data) on the income distribution in India. These articles would need to show the impact in India or in a country similar to India in ways important to the study (e.g., abundant labor).
I want you to write this like a short paper, with a thesis statement and all. Again, for example, my thesis might be “Importing labor-saving technology into Indian manufacturing may be a profit-maximizing decision for individual firms, but it exacerbates income inequality.” Some questions to ponder as you research:
What is the theoretical relationship being hypothesized/tested?
Is this the only logical theoretical link between the ‘cause' and ‘effect' variables? If so, why? If not, what other theory/theories might apply? What alternative hypothesis would this suggest?
What is the logic of the ‘identification strategy' in the paper?
Do the results support or refute the hypothesis of the authors? What about the alternative hypothesis/hypotheses you constructed?
Your paper will be graded based on your use of economic reasoning (clarity and logic);
appropriate use of mathematical symbolism, graphs, tables, etc., to explain the economic theory and to support the argument; clarity and persuasiveness of the argument; and ‘professionalism' of the paper – loosely defined as free of typos, grammatical errors, and remnants of your breakfast.
Appropriate academic references (at a minimum you must use 3!) must be used to strengthen and focus the argument, and they should be documented properly using Chicago Manual of Style “Author-date” style (see http://www.chicagomanualofstyle.org/16/ch15/ch15_sec005.html?sessionId=62439022-4726-4c57-aea0-269719f12790).
Papers to stimulate your thinking on the topic of your choice:
“Real Wage Inequality,” by Enrico Moretti. AEJ:Applied Economics 2013, 5(1): 65-103;
“Do Individuals Make Sensible Health Insurance Decisions? Evidence From a Menu with Dominated Options,” by Saurabh Bhargava, George Lowenstein, and Justin Sydnor. NBER Working Paper 21160, May 2015.
“The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers,” by Jeffrey Clemens and Michael Wither. NBER Working Paper 20724, December 2014.
“Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income,” by Hilary W. Hoynes and Ankur J. Patel, July 2015.
Comparative Advantage and the Effects on the Low-Skilled Workers
Your Institution of Affiliation
March 7, 2018
For years income inequality has been brought about by a multitude of different economic (and socio-political) factors that increases the gap vertically (classes) and horizontally (nations) between workers. On one hand, horizontal disparities are caused by the comparative advantage between nations. This theory states that for a country that can produce a commodity with less opportunity cost as compared others, the trade-off becomes much more worth it, than another country that requires a higher opportunity cost (Amadeo, 2017). Thus, this posits that if between parts of a car produced by the United States and China, the trade-off would be much better as the latter can produce goods with a much more lower opportunity cost. On the other hand, wealth disparities (and income inequality) also exist in the between different classes. This exacerbates the situation as vertical disparities (e.g. employment and income growth) are easily affected by a multitude of economic factors (e.g. binding minimum wage) that could exert negative effects towards them (Clemens & Wither, 2014). All in all, by combining both horizontal and vertical factors that lead to job inequality it could be seen that the ‘losers' would be the lower-skilled workers in countries with less comparative advantage.
In one of the literature examining this phenomena, it was stated that as compared to the early 1990s when the manufacturing output of the United States was about 30%, while China comprises 5%, these days it was reported that the former produces about 15% while the latter 25% (Borland, 2016). While this news might
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