Alternative policy rankings in a large, open economy with sector-specific minimum wages
The analysis by international trade theorists of factor market imperfections, and alternative policy rankings in the presence thereof, has distinguished between two major, polar types: (i) a distortionary wage differential between two sectors, while the wage is perfectly flexible in each sector; and (ii) a sticky (or minimum) wage which is equal, however, between the two sectors. The analysis of the former class of distortions was pioneered by Hagen [7] and has subsequently been extensively explored by Bhagwati and Ramaswami [3], Kemp and Negishi [9], and Bhagwati, Ramaswami and Srinivasan [2]. The analysis of the second class of distortions was pioneered by Gottfried Haberler [6] and has subsequently been extended fully for the traditional two-sector model of trade theory by Brecher [5]. The purpose of this paper is to analyze policy rankings in the presence of a yet different type of factor market imperfection, introduced in a pioneering paper by Harris and Todaro [S] which