Tariffs, Efficiency Wages and Unemployment

摘要

The present model embeds a model of intra-industry trade into a labour market, which is characterised by efficiency wages. It is shown that tariff protection of the import competing, home produced brands, may cause the equilibrium unemployment rate to shoot up and instead of protecting the sector may cause it to contract. This is possible when elasticity of demand is high and firms have less market power and thus, protectionist effect of tariffs may get completely reversed.