Technical Progress and Real Wages Once Again

13 Pages Posted: 16 Jul 2013

See all articles by Ravi Batra

Ravi Batra

Southern Methodist University - Department of Economics

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Reza Oladi

Utah State University - College of Business - Department of Economics

Date Written: August 2013

Abstract

We construct a general equilibrium model of trade and show that an economy can experience technological progress and declining real wages provided that it is open to trade and import demand is sufficiently inelastic in both countries. This is a puzzling outcome so far as marginal productivity paradigm is concerned. In this context we demonstrate that new technology works differently in a closed vs an open economy. In an open economy, technical improvements may generate a fall in labor real earnings, but not in a closed economy. In addition, technical progress in manufacturing must increase manufacturing–service wage gap according to marginal productivity doctrine. We show that the opposite outcome can occur theoretically in an open economy - yet another seemingly puzzling labor market outcome.

Suggested Citation

Batra, Ravi and Beladi, Hamid and Oladi, Reza, Technical Progress and Real Wages Once Again (August 2013). Review of International Economics, Vol. 21, Issue 3, pp. 506-518, 2013. Available at SSRN: https://ssrn.com/abstract=2294293 or http://dx.doi.org/10.1111/roie.12051

Ravi Batra (Contact Author)

Southern Methodist University - Department of Economics ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics ( email )

One UTSA Circle
P.O. Box 5636
San Antonio, TX 78249
United States
210-458-7038 (Phone)
210-458-7040 (Fax)

Reza Oladi

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States

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