Transcript
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The speaker revisits two questions from the previous video about why relative shares matter and why factor abundance is compared with output. The segment ends by inviting students to bring any surprising observations to class.
All right, let's continue talking about this very interesting figure here, okay?And uh in the previous previous video, we already said that um we already raised two questions, okay?Uh the first one we said that uh why, you know, on on this figure uh in each bar, we have to look at the relative uh share, okay?Of each uh country.Uh why not just look at the absolute amount, okay?The second question is why each bar leads to uh be compared with the far right one, this one about the output, okay?Uh especially when we define the abundance of factor, right?Because, you know, um the our natural response might be, you know, if we already find the share in words um total endowment of that factor, then we could say, you know, like that is abundant or scarce, right?Why we still need to compare to the output?
Uh remember all of these factors are inputs, right?But that very last one is output, okay?So, bring your thoughts to class.We're going to discuss this, okay?And um also, um on this figure, if you find, you know, other countries or their uh um abundance of factors of production, uh something kind of interesting catch your eyes or or counterintuitive even, again, bring all of theseto class, okay?We're going to spend some time talking about this guy.All right.
Introduces the Stolper-Samuelson theorem and applies it to the United States, where skilled labor is abundant and low-skilled labor is scarce. It explains how trade can hurt low-skilled workers, especially in the Rust Belt, where manufacturing declined sharply.
Uh Stolper-Samuelson theorem, a very important finding in international economics, okay?Now, uh here let's talk about um the real world application, okay?Especially for the United States, okay?Uh, compared to the rest of the world, the US is abundantly endowed with highly skilled labor, while low-skilled labor is relatively scarce.This is what we saw on the previous slide, right?With that interesting figure, right?Now, this means international trade has the potential to make low-skilled workers in the United States worse off.Not just temporarily, but on a sustained basis, okay?And remember, we said that because of the uh Stolper-Samuelson theorem, uh the relatively scarce factor loses uh from trade, right?And low-skilled workers, so we're talking about the blue-collar workers, especially those guys, you know, used to work in the manufacturing factories.Um uh you see, you know, in the Rust Belt, okay?Rust Belt is a region here in the US.
It goes from Illinois to Indiana, Ohio, Pennsylvania, all the way up to New York State, okay?Uh this region used to have a huge amount of manufacturing factors back in 19 '50s, '60s.They were the world's factory, okay?They produced a lot and exported a lot to the rest of the world.However, in the past uh three, four decades, um we see a decrease in output actually a massive shutdown of the manufacturing factories in Rust Belt and this region.So these blue collar workers are permanently out of jobs and of course this creates a lot of social and economic issues.
Clarifies that technological progress, not trade itself, is the deeper cause of long-term manufacturing job losses. Trade may speed up structural change, but the underlying shift comes from innovation and uneven sectoral growth.
Now here in terms of the international trade one thing we want to clarify or re-emphasize because we actually discussed this before.Is what matters more is technological progress.And international trade especially imports could be the effect of uneven distribution of technological progress across sectors instead of the cause job loss.In other words the fundamental reason for millions of manufacturing workers permanently out of job is because of technological progress or innovation.The innovation makes some factors or or some industries expand and other industries shrink.Okay.So these workers in the shrinking industry here it's a manufacturing sector becomes worse off permanently.Trade is actually the effect of the technological innovation.Because of the innovation we want to export what we are better at right?In the US, we're talking about the more innovative sectors.And the less innovative ones tend to shrink.So, the trade is just the other aspect of the effect uh innovation.
It's not really the cause uh job loss, okay?You could argue that, you know, trade um kind of you know, facilitates this uneven distribution.Okay?Or um trade you know, helps speed up this process.Okay?When we talk about, you know, some factors expand, others shrinks.Okay?This uh uh kind of the structural transformation of the US economy.Uh without trade it could happen you know, within a period of probably two or three generations.Okay?In other words, it takes a longer time to get there.But with trade uh especially outsourcing, okay?And we find that, you know, this happens within a much shorter period of time.Probably within a one generation.Okay?So, of course, as we said, it creates a lot of social and economic problems.Okay?
Discusses how the losers from trade should be compensated rather than protected through trade barriers. The speaker criticizes protectionism and previews the next topic: factor price equalization.
Now, in terms of the solutions, simply speaking, we believe that uh it would it would be better to compensate the losers from trade.Okay?Or as we said strictly speaking, from the technological innovation than prohibit trade.Okay?Um the economy as a whole does benefit from trade after all, right?This is what we learned from the Ricardian model back in chapter three, right?If the economy as a whole benefits then we should not stop trading with the rest of the world.Right?However, in the past uh uh decade or so, we do see in the US and actually goes far beyond the US in the the whole developed advanced uh economies world, um there's a a rising trend of trade protectionism.In other words, we said that, you know, we should promote made in the US, made in Germany, made in UK, right?And um should better protect the domestic workers from international competition.
Okay?But from here, we said that's probably not the right answer, the right direction we should go.Okay?We definitely understand, you know, these um group of people uh suffers from trade.Okay?They lose uh from trade.But we believe the economically the right way to fix the problem is to compensate them, okay, in certain ways.You can, you know, directly giving them the benefits, um or you can, you know, do like the uh some aid programs like retraining, right?Helping them find the um uh the jobs in in different industries.Okay?Uh trade protectionism or prohibiting trade is the last thing we want to do here.Okay?All right.So, this is uh um the real-world application uh for the uh Stolper-Samuelson theorem.Okay?Now, in the next video, we're just going to uh briefly talk about the another thing about the factor price.
Okay?It's called the factor price equalization.