Click

Click to
to edit
edit Master
Master title
title style
style
Relative Wages
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Ahmad Zaenal Wafik S.E.,M.Ec.Dev.
Universitas Mataram
2022

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 Click
Click to edit
edit Master
toRelative
Master title
title style
wages style
w is the wage rate in Home country
w* isClick to edit
the wage rate inMaster title style
Foreign country
w/w* is Home/Foreign wage rasio

Rule for allocation of world production :

Goods are always produced where the are cheapest to produce

Jl. Majapahit No. 62 Mataram | unram.ac.id

Click
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to edit
Cost: Home Master title
Cost: Foreign
style
Click to- For
edit Master
Home Production
<
title style
rewritten
>

- For Foreign Production

<
Jl. Majapahit No. 62 Mataram | unram.ac.id
w/w* = 9 (assumption)
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to edit
edit Master
Master title
title style
style
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• If Relative Home Productivity adv . is greater than wage rate ratio, the good will be
produce at home.
• If Relative Home Productivity adv is lower than wage rate ratio, the good will be
produce at foreign.
Jl. Majapahit No. 62 Mataram | unram.ac.id
w/w*Click
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to edit Master
= 7 (assumption)
title style
style
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w/w*Click
= 3 to edit
Click to edit Master
Master title
title style
style
(assumption)
Click to edit Master title style

Jl. Majapahit No. 62 Mataram | unram.ac.id

 Click to edit Master title style
Why comparing labor productivity, style
Click to edit Master title Relative
Home Productivity Advantage, and Relative
ClickWage
to edit
RatioMaster title style
across country ?

Jl. Majapahit No. 62 Mataram | unram.ac.id

 Click to edit Master title style
Why comparing labor productivity, style
Click to edit Master title Relative
Home Productivity Advantage, and Relative
ClickWage
to edit
RatioMaster title style
across country ?
Help us to predict where goods are actually
produced

Jl. Majapahit No. 62 Mataram | unram.ac.id

•
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to edit
edit Master
Master title
Relative demand for labour
depends on the relative title style
style
productivities
• If the relative labour supply is
at
Click to edit Master title style
then the relative
wage will be 3
• So, home would produce
apples, bananas and caviar.
• Why?, because home workers
have a prooductivity
advantage over foreign of 10,
8, and 4 for apples, bananas
and caviar respectively, but
are only paid 3

Jl. Majapahit No. 62 Mataram | unram.ac.id

•
Click
Click to
Shifting the
to edit
edit Master
to
Master title
increase the quantity of title style
will
style
labour and decrease the
relative wage
• At
Click to edit Master title style
, with relatively higher
labour supply and lower
wage, Home would now also
produce dates

Jl. Majapahit No. 62 Mataram | unram.ac.id