| Abstract: | This paper incorporates efficiency wages into the Heckscher-Ohlin model. The capital intensive sector pays higher wages than the other sector. One result is that tariffs to attract capital increase welfare by increasing the quality, not quantity, of jobs available. However, there are distributional effects among laborers. Some see an increase in wages, others become unemployed. The paper also investigates policies in the presence of illegal immigration. If immigration cannot be limited, a high wage country is best served by a capital outflow that eliminates the incentive for the labor inflow. Again, there are distributional effects among the workers. F20] |
