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Trade, Wages, and Specific Factors

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  • Indro Dasgupta
  • Thomas Osang

Abstract

In this paper, we use a multisector specific‐factors model with sector‐specific capital and two mobile factors, skilled and unskilled labor, to examine the effects of trade, technology, and factor endowments on the skill premium in US manufacturing industries. Based on this model and data for the US manufacturing sector from 1958–96, we calculate changes in the skill premium and then carry out a decomposition to identify the changes caused by product price changes (trade), technological progress, labor, and capital endowment changes. The decomposition reveals that trade effects, working through product price changes, caused the skill premium to increase moderately. Changes in capital endowments (new investments) had a positive effect on the skill premium, with the strongest impact during the 1980s, while the effect of technological change on the skill premium varied over time. Finally, changes in relative labor endowments had a negative effect on the skill premium.

Suggested Citation

  • Indro Dasgupta & Thomas Osang, 2007. "Trade, Wages, and Specific Factors," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 45-61, February.
    • Handle: RePEc:bla:reviec:v:15:y:2007:i:1:p:45-61
    DOI: 10.1111/j.1467-9396.2007.00693.x
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    References listed on IDEAS

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    1. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
    2. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
    3. repec:fth:prinin:375 is not listed on IDEAS
    4. Alan Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," Working Papers 754, Princeton University, Department of Economics, Industrial Relations Section..
    5. William R. Cline, 1997. "Trade and Income Distribution," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 58, October.
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    Cited by:

    1. Thompson, Alexi & Thompson, Henry, 2023. "Addendum: The imputed effects of US tariffs on wages," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 564-569.
    2. Henry Thompson & John Francis, 2009. "Tariff Elimination and the Wage Gap in an Industrial Specific Factors Model," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 447-460, August.
    3. Wang-Sheng Lee, 2007. "Immigration and Wages: An Open Economy Model," Melbourne Institute Working Paper Series wp2007n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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