The Stolper-Samuelson Theorem

THE STOLPER-SAMUELSON THEOREM….Over at Max’s place, Josh Bivens tells us about something called the Stolper-Samuelson Theorem, which predicts that workers without a college degree always get screwed by expanded trade:

There was a big debate about this in the economics profession in the early 1990s. Not one single economist argued about the direction of trade’s effect ? it was universally agreed that it was negative for these workers. Some said that trade’s effect was small, even very small. Some said it was large. But again, there was absolute unanimity that the net effect of trade on these workers was negative, and that trade had exacerbated inequality.

Obviously it matters a lot whether the effect is large or small or very small, but I didn’t know there was unanimity among economists that, regardless of the size of the effect, it’s always negative “in absolute (not just relative) terms, and permanently (not just through tough ‘transitions’).”

That certainly puts a different spin on the standard thesis that free trade agreements are good for growth, doesn’t it? If “growth” mean GDP growth, it’s probably true. But if “growth” means growth in median wages, as I think it should, then it might not be. You learn something new every day.

UPDATE: I didn’t mean to imply in this post that free trade is bad. In general, it isn’t. More on that here.

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