Globalization, Technical Change, and the Skill Premium : Magnification Effects from Human-Capital Investments

This paper shows that endogenous adjustments in the composition of labor supplies magnify the effects of changes in commodity prices on the measured skill premium under quite plausible conditions. These composition effects arise from decisions of individuals with heterogeneous inherent abilities about acquiring human capital. They reinforce the well-known Stolper-Samuelson effect on the measured skill premium in countries with a sufficiently high relative supply of skilled labor, but compensate them otherwise. As a result, the model can account for the observation of a worldwide increase in the skill premium during the last two decades.