Why Can It Be Suggested That the Fact That the Ratio

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The Answer is The suggestion that the rising ratio of skilled labor to unskilled labor in almost all U.S. industries, not just in traded goods industries, lends support to the view that increased inequality in the United States is not primarily due to increased Heckscher-Ohlin-type trade is based on the understanding of what the Heckscher-Ohlin (H-O) model predicts. The H-O model of international trade suggests that a country will export goods that use its abundant factors intensively and import goods that use its scarce factors intensively. According to this model, trade can affect the distribution of income within countries by altering the demand for different factors of production, such as skilled and unskilled labor.

If increased inequality were primarily due to H-O type trade, we would expect to see a rise in the demand for and wages of the factor of production that the U.S. is abundantly endowed with (presumably skilled labor) relative to the factor that it is less endowed with (unskilled labor), but primarily in industries that are engaged in international trade. This is because these industries would be expanding and hiring more of the abundant factor due to their comparative advantage in producing goods that use that factor intensively.

However, if the ratio of skilled to unskilled labor is rising across nearly all industries, including those that are not involved in international trade, this suggests that other factors beyond H-O type trade might be driving the increased demand for skilled labor. These factors could include technological change, such as automation and computerization, which tends to complement skilled labor and substitute for unskilled labor, leading to a greater demand for skilled workers across the board. It could also be due to changes in the organization of work, shifts in consumer preferences, or domestic policy decisions that affect education and training.

To counter this suggestion, one could argue that even though the ratio of skilled to unskilled labor is rising in non-traded goods industries, international trade could still be playing a significant role in driving inequality. For example:

1. Spillover Effects: The impact of trade on the demand for labor in traded goods industries could spill over into non-traded goods industries. For instance, as trade increases the demand for skilled labor in the traded sector, wages for skilled workers could rise across the board, including in non-traded sectors, due to a more competitive labor market.

2. Indirect Trade Effects: Non-traded goods industries could be indirectly affected by trade through input-output linkages. For example, non-traded goods industries might supply inputs to traded goods industries or use inputs produced by traded goods industries, and thus their labor demand patterns could be influenced by the state of international trade.

3. Globalization and Investment: Increased globalization, including but not limited to trade, can lead to an environment where even non-traded goods industries must compete with foreign firms in terms of technology and efficiency, which could increase the demand for skilled labor.

4. Policy Responses to Trade: Domestic policies that are implemented in response to trade pressures, such as education reforms or tax incentives for investment in technology, could disproportionately benefit skilled labor and affect all industries, not just those engaged in trade.

In summary, while the broad-based increase in the skilled-to-unskilled labor ratio across industries suggests that factors other than H-O type trade are at play, trade could still be a contributing factor to increased inequality through various direct and indirect channels.

Why Can It Be Suggested That the Fact That the Ratio

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