Briefly explain how skilled-biased technological change is a more believable cause behind the rising wage inequality
This problem set is based on the material of Part 3, Trade and Resources. Please read the questions carefully before answering them. Show your work, and show it clearly.
Due date: Wednesday, Feb 21, 2018 (in class)
|Sales revenue||Earnings of unskilled||Earnings of skilled|
|Low-tech (industry 1)||= 500||= 250||= 250|
|High-tech (industry 2)||= 200||= 50||= 150|
Here, and are respectively prices of low-tech and high-tech goods, and are respectively output of low-tech and high-tech goods, is wage of unskilled labor and is wage of skilled labor, is population of unskilled labor in industry 1, and is population of skilled labor in industry 1, and so on.
Suppose that because of more integration to the world economy, price of the low-tech good falls by 5%, and price of the high-tech good rises by 5%. The following equations describe how changes in prices and factor rewards are related:
Here, , , , are the cost shares of each factor in each industry.
Suppose that the countries listed in the table are engaged in free trade, and that soybean is land-intensive. Answer the following questions based on the assumptions and predictions of the H-O model.
Which countries are land-abundant?
In which countries do landowners benefit from free trade in soybean? In which countries do landowners lose from free trade in soybean? Explain.
International trade is a usual suspect as a cause behind the recent rise in wage inequality in the United States. However, many researchers do not believe that international trade is the main cause.
Type your answer and limit it to a total of less than 300 words.