As the world has been increasingly globalizing, international trade and the different factors that facilitate trade have become of critical importance. Many countries and labour markets receive many benefits from trade and specialization. However the mechanisms that constitute a comparative advantage and determining which labour markets are suited for different production opportunities is still largely debated. David Ricardo proposed that technology could explain many of the labour variations however this does not seem to account for all of the differences in productivity that are found in the real world. This analysis will briefly introduce the Ricardian model as well as discuss some of the factors that constitute labor productivity in international markets today.
Adam Smith first proposed the...
Smith believed that the value of labor was relatively static in his model however. Yet, using this model Smith explained how all countries could benefit through specialization and trade. Later, David Ricardo expanded on the concept of absolute advantage by explaining how a country could also have a comparative advantage in their production specialization.
Ricardo's concept added the idea that not all labor was equally valuable for different tasks and the rate of productivity of labour was an important consideration. For example, some labour pools were more competent at certain tasks and could produce goods or services at higher rates than other areas. He believed that technology was one of the most important factors for labour productivity and you could expect to find more productive labour in societies that were more technologically advanced. However, by looking at the way that international trade works today it is apparent that technology is not the driving factor.
For example, consider the United States that is among the most technologically advanced societies in the world. If technology was a driver that could predict a comparative advantage for production, then you would expect the United States to be a top producer of goods. However, the United States manufacturing base has steadily diminished over the course of roughly half a century during a period that also saw its technological capabilities skyrocket. Obviously, technology is not the only factor that drives production.
Some of the more modern international trade theories have tried to incorporate more factors that can explain the differences in…
Christensen, D., & Wibbels, E. (In Press). Labor Standards, Labor Endowments, and the Evolution of Inequality. International Studies Quarterly.
Markusen, J. (2013). Putting per-capita income back into trade theory. Journal of International Economics, 90(2), 255-265.
The measurement error may come from any number of omitted variables. Researchers also found that when the dependent variable is relative exports, productivity shows slightly better results than unit labor costs, but the reverse is the case when the dependent variable is bilateral trade balances. In other words, the authors discovered 'fairly strong [empirical] support" for the Ricardian model despite the intense difficulties in structuring international comparisons between productivity and labor
country has absolute advantage over other countries in producing a certain line of goods if it can produce those goods at a higher productivity level or a lower cost (Suranovic, 2015; Kilic, 2002). In contrast, a country has comparative advantage if it can produce the same goods at a lower opportunity cost than other countries (Suranovic, Kilic). These are the brief meanings of these two terms. A country possesses absolute
Labor and Union Studies in Washington and Oregon States The United States labor movement has its roots in the complex trappings of the industrial revolution. Laborers were just starting to come to the United States from foreign countries because they had learned that there were many jobs available for even the most unskilled worker. People were also moving from rural areas in America to the cities in an attempt ti have
Labor Economics is the study of labor force as a factor of production. The labor force in the broad sense of the term refers to all those who work for a definite gain that includes employees, employers, self-employed and also includes the unemployed seeking of jobs. The labor economics involves the study of the factors influencing the efficiency of labor, their deployment, determination of their wages, etc. Geographical factors, mobility
The labor productivity rates are expected to maintain their ascendant trend throughout the next period. The increases in productivity can be explained through the combined actions of three forces: improved quality of the labor and superior performances of the human resource increased quantities of organizational capitals higher efficiency of the labor process, including such forces as technological developments, socio-cultural changes, the creation of scale economies or the reallocation of labor Cyclic Changes
Adam Smith's theory of absolute advantage and Ricardo's theory of comparative advantage offer two economic approaches to international trade. Each theory contributes to the field of international economics in different ways. This literature review will compare the two theories through the lens of scholarly articles published on the respective subjects. By the 18th century (1776 to be exact), the development of international trade had reached a critical nexus: the colonies in