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Samuelsonian Economics and the Twenty-First Century$
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Michael Szenberg, Lall Ramrattan, and Aron A. Gottesman

Print publication date: 2006

Print ISBN-13: 9780199298839

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780199298839.001.0001

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Protection and Real Wages: The Stolper–Samuelson Theorem

Protection and Real Wages: The Stolper–Samuelson Theorem

Chapter:
(p.224) 15 Protection and Real Wages: The Stolper–Samuelson Theorem
Source:
Samuelsonian Economics and the Twenty-First Century
Author(s):

Rachel McCulloch

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199298839.003.0016

This chapter examines the Stolper–Samuelson's Theorem under varying conditions and assumptions. Using a previous reformulation of the theorem, it demonstrates that when the relative prices for labor-intensive goods fall, real wages decline in that sector, and the returns to other factors increase, resulting in a redistribution effect. The model had been robust in its predictions. When the number of goods and factors is increased, at least one factor is likely to gain or lose. The model is relevant for modern policies such as the Trade Adjustment Assistance and Unemployment Insurance Programs that assist distressed industries, where compensation can make a difference for individuals or firms that are hurt from free trade. The model is also relevant in the political arena where owners of factors vote or lobby. It has shown strength in explaining patterns of protection across countries.

Keywords:   Stolper–Samuelson Theorem, factor price equalization, redistribution, iceberg costs, purchasing power parity, Trade Adjustment Assistance, Unemployment Insurance Programs

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