Unilateral and bilateral trade policies for a minimum-wage economy

This paper considers optimal commercial policy for a trading economy which departs from neo-classical characteristics only in that a minimum-wage constraint gives rise to unemployment. Although for a flexible-wage fully employed economy the Baldwin envelope yields dominant domestic production-cum-trade possibilities, unilateral imposition of an optimum tariff is shown not necessarily to be optimal commercial policy for the minimum-wage economy. Rather, there exists an envelope, derived from foreigners' trade indifference and attained via bilateral trade policy, which dominates the Baldwin envelope when the optimum tariff is zero (as Brecher has shown it can be for a minimum-wage economy), and can still yield superior production-cum-trade possibilities when the optimum tariff is non-zero.