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The role of labor endowments on industry output in the short run: Evidence from U.S industries

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  • Dogan, Can
  • Akay, Gokhan H.

Abstract

This paper investigates the effect of changing factor endowments on industry output using an extended version of specific factors model with skilled and unskilled labor as mobile factors. The theoretical model is calibrated with a parametric estimation of substitution elasticities of factor inputs in 29 US Industries. We show that output declines in some industries when skilled or unskilled labor endowment increases, a result that challenges findings of the standard specific factors model as well as the Rybczynski pattern with one type of labor. Our theoretical framework demonstrates that it is essential to allow for multiple mobile factors to analyze changes in output in the short run. We offer fully accurate predictions on the change of industry output in industries in which specific capital is substitute with one type of labor and complement with the other type.

Suggested Citation

  • Dogan, Can & Akay, Gokhan H., 2019. "The role of labor endowments on industry output in the short run: Evidence from U.S industries," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 281-291.
  • Handle: RePEc:eee:reveco:v:60:y:2019:i:c:p:281-291
    DOI: 10.1016/j.iref.2018.10.017
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    More about this item

    Keywords

    Specific factors model; Output change; Factor endowments; Elasticity of substitution;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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