Notes Feb3 - H.S Grad Some College College Grad College...

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EC340 Sec. 3 Professor Matusz 2/3/11 Capital Abundant Home Autarky = Expensive Labor, Cheap Capital Trade = Wages (Increase), Return on Capital (Decrease) Labor Abundant Foreign Autarky = Cheap Labor, Expensive Capital Trade = Wages (Decrease), Return on Capital (Increase) Given all the assumptions of the Heckshin-Olin model, the home wage will equal the foreign wage and return to capital at home will equal return to capital foreign with trade. (Factor Price Equalization Theorem) Stolper-Samuelson Theorem An increase in the price of the capital-intensive good relative to the price of the labor-intensive good will increase the real return to capital and reduce the real wage. Likewise, a fall in the price of the capital-intensive good relative to the price of the labor-intensive good will reduce the real return to capital and increase the real wage. Heckshin-Olin Result is that capital abundant country exports capital-intensive good. Real Hourly Wages (U.S.A.) Year H.S. Dropout
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Unformatted text preview: H.S. Grad Some College College Grad College + Professional 1979 10.06 11.23 12.24 15.52 18.80 1989 8.44 10.21 11.82 15.90 20.36 % Change-16.1-9.1-3.5 2.4 8.3 Re-define the factors of production in the Heckshin-Olin model. Skilled labor and unskilled labor [not capital and labor]. U.S. is relatively abundant in skilled labor compared with most other countries. By H-O Theorem, U.S. has a comparative advantage in producing goods intensive in skilled labor. Skill-Biased Technology Change • New technologies entered the workplace that increased the demand for skilled workers relative to unskilled workers. • The problem with this explanation is that it can’t be shown. Skill-biased technology change would have to be concentrated in skill-intensive sections. Immigration of Unskilled Workers • Some people call the factor price of equilibrium theory the price insensitivity theorem. • Factor prices not very sensitive to change in factor supplies....
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Notes Feb3 - H.S Grad Some College College Grad College...

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