Rufiin, Jie(2001)

Journal of International Economics 53 (2001) 445–461 www.elsevier.nl / locate / econbase

Quasi-specific factors: worker comparative advantage in the two-sector production model

Roy J. Ruffin a,b , *

a

Department of Economics, University of Houston, Houston, TX, USA b Federal Reserve Bank of Dallas, Dallas, TX, USA Received 7 April 1999; accepted 6 December 1999

Abstract This paper integrates the Heckscher–Ohlin, specific factors, and the Ricardian models of production with applications to international trade and labor economics. The model economy exhibits both Heckscher–Ohlin and specific factors properties, but never at the same time. In international trade, the wage skill premium across countries can move in different directions and has natural limits within countries. In labor economics, we show that the earning of economic rents is not inconsistent with competitive markets in general equilibrium and that process and skill-based innovations have contrasting effects on wage inequality. © 2001 Elsevier Science B.V. All rights reserved.

Keywords: Heckscher–Ohlin; Ricardian; Specific factors; Wages JEL classification: F11; D33

1. Introduction The skewed distribution of earnings is strong evidence of comparative advantage in individuals (Sattinger, 1978). Thus, individuals with comparative advantages earn economic rents in their favored industries. Ironically, perhaps, the standard Heckscher–Ohlin model of trade ignores the comparative advantage of individuals or factors, because economic rents are zero. This paper augments the

*Tel.: 11-713-743-3827; fax: 11-713-743-3798. E-mail address: rruffin@uh.edu (R.J. Ruffin). 0022-1996 / 01 / $ – see front matter © 2001 Elsevier Science B.V. All rights reserved. PII: S0022-1996( 00 )00072-6

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R. J. Ruffin / Journal of International Economics 53 (2001) 445 – 461

standard Heckscher–Ohlin model by supposing one of the factors is produced by two labor types with Ricardian comparative advantages (Ruffin, 1988)....