IDEAS home Printed from
   My bibliography  Save this paper

New Goods and Rising Skill Premium: A Theoretical Investigation


  • Chong Xiang

    (University of Michigan)


This paper examines the effects of new goods on the relative wages of skilled-labor and trade patterns in a two-cone Heckscher-Ohlin model and shows that: (i) new goods can be a valid theoretical explanation for the rising skill premium in the U.S. (ii) new goods have both domestic and international factor market effects, and their interplay determines the outcome and gives rise to surprising results; (iii) new goods that are “friendly” to the abundant (scarce) factors move the relative factor prices in the direction of convergence (divergence). The setup is general in the goods dimension so that the introduction of new goods is completely unrestricted, and the results apply to any one or any combination of the relative demand shocks for skilled labor. The results also apply when non-tradable goods are present.

Suggested Citation

  • Chong Xiang, 2002. "New Goods and Rising Skill Premium: A Theoretical Investigation," Working Papers 478, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:478

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    new goods; rising skill premium; international and domestic factor market effects; lens condition for factor price equalization; production set;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mie:wpaper:478. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FSPP Webmaster). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.