Skill Intensity Reversal and the Rising Skill Premium: Evidence from the U.S. and Mexico

Kurokawa, Yoshinori (2006): Skill Intensity Reversal and the Rising Skill Premium: Evidence from the U.S. and Mexico.

Abstract

Rising skill premium in two countries can be explained simply by the Heckscher-Ohlin model assuming a “skill intensity reversal.” This assumption, however, poses an empirical challenge since past research has found little evidence for the so-called “factor intensity reversal.” We now show clear-cut evidence: U.S. net exports to Mexico of electronics products, which were high-skill intensive in the U.S. but low-skill intensive in Mexico, increased from 1994 to 2000. U.S. net imports from Mexico of non-electronics products, which were low-skill intensive in the U.S. but high-skill intensive in Mexico, increased as well. The skill premium then increased in both countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Heckscher-Ohlin model; Skill intensity reversal; Rising skill premium; U.S.; Mexico
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade

References

Acemoglu, D., 1999. Patterns of Skill Premia. National Bureau of Economic Research, Inc., NBER Working Papers 7018.

Berman, E., Bound, J., Griliches, Z., 1994. Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures. Quarterly Journal of Economics 109, 367-397.

Dinopoulos, E., Segerstrom, P., 1999. A Schumpeterian Model of Protection and Relative Wages. American Economic Review 89, 450-473.

Esquivel, G., Rodríguez-López, J.A., 2004. Technology, Trade, and Wage Inequality in Mexico before and after NAFTA. Journal of Development Economics 75, 79-94.

Feenstra, R.C., Hanson, G.H., 1996. Foreign Investment, Outsourcing and Relative Wages. In: Feenstra, R.C., Grossman, G.M., Irwin, D.A. (Eds.), The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati. MIT Press, Cambridge, MA, pp. 89-127.

Feenstra, R.C., Hanson, G.H., 2003. Global Production Sharing and Rising Inequality: A Survey of Trade and Wages. In: Choi, K., Harrigan, J. (Eds.), Handbook of International Trade. Basil Blackwell, Oxford, pp. 146-187.

Feenstra, R.C., Hanson, G.H., Swenson, D.L., 2000. Offshore Assembly from the United States: Production Characteristics of the 9802 Program. In: Feenstra, R.C. (Ed.), The Impact of International Trade on Wage. University of Chicago Press, Chicago, IL, pp. 85-122.

Hanson, G.H., Harrison, A., 1995. Trade, Technology, and Wage Inequality. National Bureau of Economic Research, Inc., NBER Working Papers 5110.

Katz, L.F., Autor, D.H., 1999. Change in the Wage Structure and Earnings Inequality. In: Ashtenfelter, O., Card, D. (Eds.), Handbook of Labor Economics, Vol. 3A. North-Holland, Amsterdam, pp. 1463-1555.

Krugman, P.R., 1995. Growing World Trade: Causes and Consequences. Brooking Paper on Economic Activity 1995, 327-362.

Krugman, P.R., 2000. Technology, Trade and Factor Prices. Journal of International Economics 50, 51-72.

Krusell, P., Ohanian, L.E., Rios-Rull, J.V., Violante, G.L., 2000. Capital-Skill Comlementarity and Inequality: A Macroeconomic Analysis. Econometrica 68, 129-154.

Kurokawa, Y., 2006. Trade and Variety-Skill Complementarity: A Simple Trade-Based Resolution of Wage Inequality Anomaly. Mimeo, University of Minnesota.

Larudee, M., 1998. Integration and Income Distribution under the North American Free Trade Agreement: The Experience of Mexico. In: Baker, D., Epstein, G., Pollin, R. (Eds.), Globalization and Progressive Economic Policy. Cambridge University Press, Cambridge, UK, pp. 273-295.

Lawrence, R., Slaughter, M.J., 1993. International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup? Brookings Papers on Economic Activity: Microeconomics 1993, 161-226.

Leontief, W., 1964. An International Comparison of Factor Costs and Factor Use: A Review Article. American Economic Review 54, 335-345.

Minhas, B.S., 1962. The Homohypallagic Production Function, Factor Intensity Reversals and the Heckscher-Ohlin Theorem. Journal of Political Economy 70, 138-156.

Moroney, J.R., 1967. The Strong-Factor-Intensity Hypothesis: A Multisectoral Test. Journal of Political Economy 75, 241-249.

Robertson, R., 2004. Relative Prices and Wage Inequality: Evidence from Mexico. Journal of International Economics 64, 387-409.