New Goods and the Skill Premium

24 Pages Posted: 7 Feb 2006

See all articles by Chong Xiang

Chong Xiang

Purdue University - Krannert School of Management

Date Written: July 2005

Abstract

In a two-cone Heckscher-Ohlin model with CES preferences and a continuum of goods, adding new goods to the North's technology necessarily increases the Northern skill premium if the new goods are skilled-labor intensive, but may even increase the premium if they are unskilled-labor intensive. Thus, the introduction of new goods into US technology could have done more to increase the US skill premium than a closed economy model would predict. I also explore how new Northern goods affect the Southern skill premium and what happens if new goods generate preference reversals across existing goods. I develop a two-step solution method that simplifies the analysis of many other comparative static exercises in a two-cone Heckscher-Ohlin model with a continuum of goods.

JEL Classification: F1

Suggested Citation

Xiang, Chong, New Goods and the Skill Premium (July 2005). Available at SSRN: https://ssrn.com/abstract=881078 or http://dx.doi.org/10.2139/ssrn.881078

Chong Xiang (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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