Globalization, unemployment, and excess capacity : a model and a conjecture

Research output: Working paperWorking paper series


Using a theoretical model with an industrial world trading with a developing world and assuming no impediment to capital flows, it is shown that an abundant supply of unskilled labor will render real wages for the unskilled close to the subsistence level and will result in excess capacity. The rate of return for traditional manufacturing investment at the margin will decline so funds will seek to invest in financial assets and real property, boosting their prices. Under reasonable assumptions about the income elasticity and the price elasticity of demand for manufacturing products in rich and poor countries, it is shown that a global minimum wage may improve welfare. The paper discusses possible risks of such a strategy.
Original languageEnglish
Place of PublicationHong Kong
PublisherCentre for Public Policy Studies
Number of pages19
Publication statusPublished - Sept 2004

Publication series

NameCentre for Public Policy Studies Working Paper Series
PublisherLingnan University


  • Financialization
  • global minimum wage
  • capital flows
  • income gap
  • income elasticity of demand
  • price elasticity of demand
  • elasticity of substitution
  • unemployment rate
  • globalization

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