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North-South Trade, Employment and InequalityChanging Fortunes in a Skill-Driven World$
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Adrian Wood

Print publication date: 1995

Print ISBN-13: 9780198290155

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198290152.001.0001

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Theoretical Framework

Theoretical Framework

(p.27) 2 Theoretical Framework
North-South Trade, Employment and Inequality

Adrian Wood (Contributor Webpage)

Oxford University Press

The labour market effects of North–South trade in manufactures are analysed in a simple Heckscher–Ohlin (H–O) model, with North and South as the two countries, and skilled and unskilled labour as the two factors. Land is omitted from the model for simplicity, but capital is deliberately excluded because of its mobility. The assumptions of H–O theory about technology are defended. Trade causes convergence of Northern and Southern skilled–unskilled wage ratios, because labour supply is imperfectly elastic. Rigid wage differentials may cause the effect in the North to emerge as a rise in the equilibrium rate of unemployment.

Keywords:   capital, differentials, labour market, mobility, supply, technology, trade, unemployment, wage

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