Answer to Question #98990 in Macroeconomics for annie

Question

Assume after the economic crises, Greece had increased the tariff rates, which decreased the trade between Germany and Greece significantly. How would this affect the wage and supply of the skilled labor relative to unskilled labor in Germany and Greece, both in the short run and in the long run?

Answer 1

In Greece, higher tariff rates will cause increasing prices for goods. As a result of rising prices for goods over time, demand for them will decrease. Consequently, Greece will be forced to shrink some part of manufacturing . In the long run, demand for labor supply will decrease mainly due to unskilled workers and wages will decrease. In this case, Germany will be able to expand its markets and hence labor supply will increase. In order to increase productivity with the existing labor resources, it will be forced to pay workers more and therefore wages will increase. Tariff rates for unskilled labor in Germany will increase.