Final answer:
Trade-liberalization can contribute to income inequality by creating unemployment in industries that cannot compete internationally. Increasing trade can result in job losses in certain industries, while other industries may benefit. To avoid increased unemployment, measures such as retraining programs or investment in new industries may be necessary.
Step-by-step explanation:
Trade-liberalization can contribute to income inequality. When trade barriers are reduced or eliminated, it can lead to increased trade volumes and lower production costs. While this can result in economic gains and an improved quality of life for many people, it can also lead to dislocation of production plants and unemployment for workers in industries that cannot compete with international competition.
For example, let's consider a scenario where trade between Germany and the Czech Republic increases due to a reduction in trade barriers. Germany sells house paint to the Czech Republic and the Czech Republic sells alarm clocks to Germany. In this pattern of trade, it is likely that jobs and wages in the paint industry in Germany would decrease, while jobs and wages in the alarm clock industry in both Germany and the Czech Republic would increase.
To avoid an increase in total unemployment in both countries, factors such as retraining programs for displaced workers, investment in new industries, or the development of alternative job opportunities need to be implemented.