Question

Explain the Heckscher-Ohlin model and the income distribution between skilled and unskilled workers (assume there are only two factors of production namely skilled and unskilled labour).

Answer 1

The Heckscher-Ohlin model proposes that a country exports the product that can be produced most efficiently with the given resources found in abundance and import the other products. It becomes the basis of international trade, when the production and export is dependent of the factors available in abundance in that country. For example, a country with abundance of labor will produce labor intensive products such as agricultural goods, but a country with capital in abundance will produce and export capital intensive goods.
Here, labor can be classified into two categories such as skilled workers and unskilled workers. Skilled workers will have a higher marginal revenue product of labor than that of unskilled workers. So, higher income or wage will be paid to the skilled workers and less wage will be paid to the unskilled workers. Though, skilled workers in numbers will be less than the unskilled workers.