Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 3 (2015), No. 3, Pages 46-71

DOI: 10.12735/jfe.v3i3p46

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Trading Tasks and Skill Premia

Sherif Khalifa1  Evelina Mengova2 

1Department of Economics, Steven Mihaylo College of Business and Economics, California State University, Fullerton, USA
2College of Business, Governors State University, USA

URL: https://doi.org/10.12735/jfe.v3i3p46

To Cite this Article     Article Views: 855     Downloads: 356  Since deposited on 2015-09-10

Abstract

The 2x2x2 Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in the skill abundant developed countries, and to decrease in the skill scarce developing countries, after trade openness. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers only, and the H-tasks can be performed by high-skilled workers only. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. In this context, the North offshores the H-tasks to countries that are relatively more abundant in high-skilled labor, and L-tasks to countries that are relatively more abundant in low-skilled labor. Therefore, countries that become the hosts of L-tasks experience a decrease in the skill premium, because there will be higher demand for their low-skilled workers, while those that become the hosts of the H-tasks will experience an increase in the skill premium, because there will be higher demand for their high-skilled workers. This accounts for the asymmetric patterns of skill premia in the South.

JEL Classifications: F16, J31, O34

Keywords: trading tasks, skill premium, labor market

To Cite this Article: Khalifa, S., & Mengova, E. (2015). Trading tasks and skill premia. Journal of Finance and Economics, 3(3), 46-71. https://doi.org/10.12735/jfe.v3i3p46

Copyright © Sherif Khalifa & Evelina Mengova

Creative Commons License
This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Trading Tasks and Skill Premia
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