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When the United States began to import more automobiles, auto workers were laid off

Economics Dec 08, 2020

When the United States began to import more automobiles, auto workers were laid off. Reconcile this fact with the statement that international trade only affects the number of goods available and not employment.

Expert Solution

The difference is whether we are looking at the situation in the example from a micro or a macroeconomic point of view. In the macro view, the imported automobiles were either more affordable or of higher quality, or perhaps both. Getting more for less makes all the purchasers of automobiles better off. It also provides them with more disposable income to spend on other goods, which promotes economic growth.

However, on the microeconomic level of a particular group of autoworkers in a particular place, the situation looks different. Those laid-off workers will have to seek employment in another auto factory, perhaps at a lower wage, or they may have to retrain and upgrade their skills for an entirely different line of work. Over time, and with the economic assumption of perfect mobility, the extra demand in the macroeconomy should adjust and provide work for them somewhere else. But the adjustment period will be difficult. That is why the US government provides unemployment compensation and other services to help workers in this type of situation.

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