Task Overview:
In our next class, you will complete an in-class Document-Based Question (DBQ) essay evaluating the economic impacts of international trade integration and immigration on income distribution across North America and the European Union. To prepare, you have 80 minutes to research the core economic models, regional case studies, and empirical datasets listed below.
Use this time to compile detailed notes, mathematical relationships, supply-and-demand diagrams, and empirical evidence. You will be expected to bold your explicit model analysis during the in-class essay.
1. Theoretical Frameworks of Trade & Factor Pricing
Ricardian Comparative Advantage: Research David Ricardo’s model of comparative advantage. How does specialization based on lower opportunity costs expand total world output and allow nations to consume beyond their domestic Production Possibility Frontiers (PPFs)? How does specialization generate consumer surplus?
Heckscher-Ohlin Model & Stolper-Samuelson Theorem: Research factor proportions theory. Why does trade opening between capital/skill-abundant nations and labor-abundant nations increase real returns to the abundant factor while depressing real returns to the scarce factor?
Specific Factors Model (Jones / Samuelson): Research short-run trade adjustment. Why do factors tied to import-competing sectors (e.g., specialized factory capital, region-bound labor) suffer severe income losses when trade barriers fall, while mobile factors reallocate?
New Trade Theory (Krugman): Research economies of scale, intra-industry trade, and strategic trade policy. What are the theoretical benefits and real-world political risks of strategic industrial subsidies?
2. Case Study 1: Immigration & Labor Dynamics in North America
Labor Supply Shifts vs. Wage Compression (Borjas Model): Research how foreign-born labor supply shifts impact equilibrium real wages in low-skill sectors. Which educational groups bear the highest wage elasticities during peak immigration inflows?
Imperfect Substitutability & Task Complementarity (Peri & Ottaviano Model): Research why immigrant and native workers are imperfect substitutes within skill groups. How does native labor shift toward communication/supervisory tasks when foreign-born labor enters manual tasks?
Natural Experiments in Labor Absorption (Card / Mariel Boatlift): Research David Card’s 1990 Miami study. How do local economies absorb large labor supply shocks through capital investment and business scale adjustments without long-run wage depression?
3. Case Study 2: Free Trade & Single Market Integration in the European Union
Single Market Efficiency vs. Regional Factor Displacement: Research how the removal of tariffs and non-tariff barriers across EU member states affected Eastern vs. Western European economies.
Factor Price Convergence in the EU: Examine how free trade between high-wage Western EU members and lower-wage accession states altered relative demand for low-skilled industrial labor.
EU Structural Policies: Research how the EU uses Cohesion Funds and the European Globalization Adjustment Fund (EGF) to assist trade-impacted industrial regions.
4. Inequality Measurement & Fiscal Redistribution
The Lorenz Curve & Gini Coefficients: Review how the Lorenz curve measures cumulative household income distribution. What does an outward shift of the Lorenz curve represent?
Pre-Tax Market vs. Post-Tax Disposable Lorenz Curves: Research the difference between market-driven income inequality and post-transfer disposable inequality. How do progressive taxation, wage subsidies (e.g., Earned Income Tax Credit), collective bargaining, and welfare state safety nets pull the post-tax Lorenz curve back inward (reducing the Gini coefficient)?
Primary Economic Theorists: David Ricardo (Comparative Advantage), Eli Heckscher & Wolfgang Stolper / Paul Samuelson (Factor Pricing), Ronald Jones (Specific Factors Model), Paul Krugman (New Trade Theory & Factor Prices), and Thomas Piketty (Capital & Inequality).
Immigration Economists: George Borjas (Labor Supply & Wage Compression), David Card (Mariel Boatlift Natural Experiment), and Giovanni Peri & Gianmarco Ottaviano (Skill Complementarity).
Empirical Data Databases: World Bank World Development Indicators, OECD Income Inequality Database (Gini Coefficients), Eurostat, and US Bureau of Labor Statistics (BLS).