advantage. The benefit is that overall national income and employment
become less volatile.
Protecting Specific Groups
Although specialization according to comparative advantage will
maximize average per capita GDP, some specific groups may have higher
incomes under protection than under free trade. Of particular interest in
Canada and the United States has been the effect that greater
international trade has on the incomes of unskilled workers.
Consider the ratio of skilled workers to unskilled workers. There are
plenty of both types throughout the world. Compared with much of the
rest of the world, however, Canada has more skilled and fewer unskilled
people. When trade is expanded because of a reduction in tariffs, Canada
will tend to export goods made by its abundant skilled workers and
import goods made by unskilled workers. (This is the basic prediction of
the factor endowment theory of comparative advantage that we discussed in
Chapter 32 .) Because Canada is now exporting more goods made by
skilled labour, the domestic demand for such labour rises. Because
Canada is now importing more goods made by unskilled labour, the
domestic demand for such labour falls. This specialization according to
comparative advantage raises average Canadian living standards, but it
will also tend to raise the wages and employment prospects of skilled
Canadian workers relative to those of unskilled Canadian workers.