International Trade - Theory and Policy, 2010a

Real Wages in Autarky
To calculate autarky real wages, we simply plug the autarky price ratio into the real wage formulae.
Recall that the autarky price ratio is (PCPW)Aut=aLCaLW. Plugging this in and simplifying yields the
results in Table 2.13 "Autarky Real Wages".
Table 2.13 Autarky Real Wages
In Terms of Cheese
In Terms of Wine
Real Wage of Cheese Workers wCPC=1aLC wCPW=1aLCaLCaLW=1aLW
Real Wage of Wine Workers wWPC=1aLWaLWaLC=1aLC wWPW=1aLW
where
PC = price of cheese
PW = price of wine
wC = wage paid to cheese workers
wW = wage paid to wine workers
aLC = unit labor requirement in cheese production in the United States (hours of labor necessary to
produce one unit of cheese)
aLW = unit labor requirement in wine production in the United States (hours of labor necessary to
produce one unit of wine)
Notice that in autarky, the real wage of cheese workers is exactly the same as the real wage of wine
workers with respect to purchases of both goods. This occurs because labor is assumed to be
homogeneous—that is, all labor is the same—and because there is free mobility between industries. (If
workers were paid different wages, the lower-wage workers would move to the higher-wage industry.)
Comparison of Autarky Real Wages between Countries
Suppose the United States has an absolute advantage in the production of both goods. In this
case, 1aLC>1a∗LC and 1aLW>1a∗LW. This implies that the real wages of workers in both industries in the
United States are higher than the real wages in France. Put another way, workers in France earn lower
wages in both industries.
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