At the same time, the return on capital, adjusted to reflect different levels of risk, will be equalized. The Stolper-Samuelson result implies, for example, that if shoes are produced mainly with the labor of unskilled workers, an increase in the tariff on imported shoes will tend to increase the wages earned by unskilled workers. If all work- ers have roughly the same level of skill, then removal of the tariff will recluce the average wage earned by all workers. To critics of openness, overseas investment by U.S. firms adds to the injury suffered by American workers. By fleeing to other low-wage locations, or even threatening to do so, firms can seemingly pressure their workers to accept lower wages at the very least, to refrain from demanding pay increases.
Capital is footloose, while labor is immo- bile.
Labor cannot stand a chance in this environment, they say, and must inevitably lose bargaining power. The wage suppression argu- ments of the 1990s have strong parallels to critics claims in the 1980s that trade was turning good jobs into lousy ones. The trade critics of the 1990s, however, see even greater dangers ahead. They observe that virtually all future population growth will take place in countries like China, India, and Indonesia, where wages are a fraction of those in the United States. At the same time, highly mobile capital is increasingly finding its way to these places, arming third-world workers with first world technology.