What Does Economic Theory Predict Will Be the Total Effect

Question

Examlex · Accepted Answer

The Answer is Economic theory predicts that there should be no effect on total employment from more open international trade as long as wages are flexible and there are no impediments to worker mobility.While more open international trade causes job loss in a country's import competing industries,more open international trade also creates new opportunities in export industries and in industries providing complementary goods for imports.As long as workers displaced by foreign competition are able to flow easily to other segments of the labor market,more open international trade should not lead to a net reduction in employment but rather to a reallocation of the existing labor pool.
It is difficult to isolate the employment effects of trade on a country's employment level for two reasons.First,trade related changes in employment occur simultaneously with changes in employment due to technological change,immigration,change in income,and change in consumer preferences.Second,while it is relatively easy to identify sectors of the economy hurt by trade,it is much more difficult to identify those industries,occupations,and regions that experience employment increase because of trade.The costs experienced in sectors hurt by trade tend to be concentrated,while the benefits experienced in sectors helped by trade tend to be widely dispersed.

What Does Economic Theory Predict Will Be the Total Effect

Definitions: