 International trade, skill premium and endogenous labor division: The case of MexicoLabour Economics, 2021, vol. 71, issue C Abstract: Why trade liberalizations increase the skill premium? To explain this empirical evidence that is in contrast with the conventional theory of Heckscher-Ohlin, I build up a general equilibrium micro-founded heterogeneous-firm model of international trade where firms make decisions on their division of labor, and firms’ skill-intensities are endogenously determined. I show why the exporters are generally more productive and skill intensive and how trade cost reductions induce more productive firms to choose a higher degree of labor specialization, become more skill intensive and start to export. I further demonstrate how such internal horizontal organizational changes, after a trade cost reduction, can directly increase aggregate skill intensity and the relative demand for skilled workers, resulting in higher skill premium in a general equilibrium setting. Lastly, I calibrate this model to the Mexican data to quantify the rise in the skill premium in the period of its trade liberalization 1985~1993. Keywords: Skill premium; International trade; Labor specialization; Endogenous skill intensity; Firm organization; Trade liberalization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:71:y:2021:i:c:s0927537121000658 DOI: 10.1016/j.labeco.2021.102030 Access Statistics for this article Labour Economics is currently edited by A. Ichino More articles in Labour Economics from Elsevier |
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