Political discussions of international trade often focus on comparisons of wage rates different countries. For example, opponents of trade between the united states and mexico often emphasize the point that workers in mexico are paid only about $2 per hour, compared with more than $15 per hour for the typical worker in the united states. Our discussion of international trade up to this point has not explicitly compared wage in the two countries, but it is possible in the context of this numerical example to determine how the wage rates in the two countries compare.
In this example, once the countries have specialize, all home workers are employed producing cheese, since it takes 1 hour of labor to produce 1 pound of cheese, workers in home earn the value of 1 pound of cheese per hour of their labor. Similarly, foreign workers produce only wine; since it takes 3 hours for them of produce each gallon, they earn the value of 1⁄3 of a gallon wine per hour.
To convert these numbers into dollar figures, we need to know the price of cheese and wine. Suppose that a pound of cheese and a gallon of wine both sell for $12; then home workers will earn $12 per hour, while foreign workers will earn $4 per hour. The relative wage of a country’s workers is the amount they are paid per hour, compared with the amount workers in another country are paid per hour. The relative wage of home workers will therefore be 3.