Question

Vietnamese workers earn only $1.50 per hour; if we allow Vietnam to export as much as it likes, our workers will be forced down to the same level. You can't import a $10 shirt without importing the $1.50 wage that goes with it. Discuss.

Answer 1

The workers’ wage in each country is determined by their labour productivity. The low hourly wage of Vietnamese workers($1.50) reflects their low productivity while the high wage in other country's reflects a highly productive labour force. The differences in wages don’t affect the gains from trade for each country. In the short run, however, labour can’t switch across sectors costlessly. In the long run, other country's workers can work in sectors that we have a comparative advantage at and gain from greater consumption and cheaper prices of imported goods. Hence, this argument is not necessarily true.