Hi Dr. Liliana,

Interesting question. Congrats!

I´ll try to answer all the parts:

Why is trade reinforcing the labor effects of technological change in developing countries if labor is considered the abundant factor of production?

1- Is it happening in Mexico precisely, or you have evidence of this trend in other developing countries? Could you show us which ones?

2a- Well, you are stating that "trade should increase the labor demand" based on which expectation exactly? What strong direct and positive correlation you are basing your statement? And "especially of less skilled workers" could happen in commerce of simple consumer goods, but seems to me that any other good demands (consumer and capital goods) skilled people nowadays.

2b- "but it seems that exactly the opposite is happening: the relative demand for low skill workers is decreasing." Please, give us some numbers to make it a little more clear.

2b- "It could be that the nature of trade is changing due to the technological advance."

I would say that it seems to be the answer. It seems to me that your feelings are right. But I´d like to have more data and to see more people discussing this vital question before my final answer.

My best wishes.

Prof. Hess

Thank you Dr. Hess. I have a paper that analyzes the changes in the Mexican labor market based on a classification of occupations. I classify occupations based on the tasks they perform: routinary and non routinary and cognitive and manual (just like Acemoglou and Autor do in their paper from 2011). I find that the movements of workers within industries benefit those that perform non routinary and manual tasks and harms exactly those performing routinary tasks, either manual or cognitive. It puzzles me why trade does not comepnsate these movements in a country like Mexico. I find that movements between industries (mostly attributed to trade) not only do not compensate but reinforce the movements within industries. For me it is clear that the nature of trade is also changing due to technological advances but I would like to understand better this phenomenon.

Very good. I am following and I´ll look for something else to contribute.

My Best.

Dr. Liliana,

I´ve found a VIDEO in this link that can help answer part of your question.

http://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018

Video: Chapter 2: Labor Force Participation in Advanced Economies: Drivers and Prospects

Good morning,

I see two possible and interlinked explanations.

First, the notions of low and high skills is relative and may not be the same when you refer to one country in isolation, or the same country considered from an international perspective. A few decades ago, having completed high school in most developed countries did put you in the skilled group. Today, it is no more the case. In many least developing countries, access to secondary education still provides you with a comparative advantage in terms of skills compared to your compatriots. But on an international basis, you are considered as unskilled.

Second, when trade takes place in global value chains (the case of Mexico), the firms engaged in supply chains have to use advanced technologies that are the standard required by the value-chain lead firm (usually a multinational company). And using these advanced technologies (programable machine tools with numerical commad, for example) requires relatively advanced skills. Those skills may be classified as basic in the lead-firm country, but may be classified as medium-to-high skills in the export-processing country.

In brief, when manufacturing production is globally fragmented and technology is globalised, the grading skills becomes also global. Unskilled workers may not find a role to play here (or only in support tasks such as cleaning and maintaining the buildings where export processing takes place).

cheers,

Hubert

Thank you very much Dr. Escaith. I think you are absolutely right and I´m decided to argue about the global value chains in my conclusions. The idea of fragmentation of the manufacturing production is quite appealing and I´m sure this is a factor behind my results. Again, tahnk you so much.

I endorse Hubert Escaith on concrete explanations. Let me add one point to his explanation.

You must have made your initial guess relying on Heckscher-Ohlin-Samuelson theory of international trade. It is natural as it is ordinarily considered as standard theory. The evidence is that you are considering in terms of factor abundance. But HOS theory is a very rude theory that has many defects. HOS and its extended variant HOV theory are famous by its predictive power badness. See my question page:

Who still supports Heckscher-Ohlin model?

https://www.researchgate.net/post/Who_still_supports_Heckscher-Ohlin_model

As for a better understanding of the 21st century international trade, you should study the new theory of international values. It is for the moment the unique general theory that can treat trade of input goods (or intermediate goods). Fragmentation and outsourcing and the emergence of global value chains can be explained by the new theory.

See The New Theory of International Values: An Overview

Chapter 1 in A New Construction of Ricardian Theory of International Values, Springer, 2017.

You can freely download a draft version at

https://www.researchgate.net/publication/304717720_The_New_Theory_of_International_Values_An_Overview

Thank you so much Dr. Shiozawa. I will definitely add these ideas to my paper and will explicitly thank you and Dr. Escaith for the important thoughts you have shared.

Dear Dra. Mesa:

He preferido usar el español para responderle a su aseveración:

Los modelos económicos de desarrollo industrial, en nuestra América Latina, se basaron en el paradigma de la ¨sustitución de importaciones¨. Queríamos una América autárquica, sin el acerbo cultural o tecnológico necesario para hacerlo. El modelo funcionó bien hasta que los ¨Tigres Asiáticos y Japoneses¨iniciaron una ofensiva industrial que los llevo a ser exportadores netos, para poder solventar su consumo interno.

Este modus operandis fue posible gracias a la inyección de recursos financieros y tecnológicos del mundo industrial de los 1970´s. Las grandes industrias miraron hacia Asia/Pacífico por los atractivos de mano de obra barata y privilegios fiscales. Trataron de hacer, en los años 80-90¨s lo mismo con nuestra América Latina, pero a diferencia de ellos, nos quedamos muy atrás en lo tecnológico y cognitivo, mientras que los de Asia/Pacífico invirtieron en la escolaridad e investigación casi el 15% del PIB. Ahí estriba la gran diferencia, que ya hoy es como una espada de Damocles, para nuestra mano de obra NO diestra.

Maybe one should also take into account the view that less skilled workers are also, or are fastly becoming, an abundant factor of production in developed countries too, due to a. mainly the 4rth industrial revolution and b. trade that still sends jobs to Asia, etc. So, overall, as globalization proceeds, the less skilled in developing countries are 1. becoming part of a 'common' global pool 2. increasing rapidly at a global scale. In this case, wages might go down....

Thank you very much for your interesting insights, Dr. Pelagidis and Dr. Malagón. The world is witnessing many changes and we should take that into account given that the theory we have at hand was generated in a different time, characterized by different conditions both in terms of factors of production and globalization and technological change. Thanks again!!

Thank you very much Dr. Mansury! I will review the material you have sent really carefully. This makes a lot of sense.

Thank you so much Dr. Kiju. Nothing than going back to basics!!

I may not have been sufficiently explicit in my first comment four months ago. Let me explain more in detail.

HOS theory or its similarities (such as HOV theory) are all based on factor proportion theory. They think factor proportions (e.g. proportion between labor force and capital or proportion between high and low skilled labor forces). This is deeply rooted in the neoclassical economics. The most common production function is supposed to be expressed in the form

Y = f(L, K ). 　　　　　　　　　　　(1)

This formula is commonly understood to represent aggregate production functions. But neoclassical economists think that this is also true for production of each good. In this case, the inputs to the production should be specified in more detailed way. For example, it takes a form like

y = f(l1, l2, a1, a2, ... , an) 　　　　　　(2)

Few economists ask if this formulation is plausible. If the good produced is a passenger car, l1, l2 are low and high skilled labor, a1 is the number of engines, a2 the number of wheels, etc. The important point is that these inputs are independent variables. They can take any positive numbers. If you put a combination of them, you get a certain amount of product. This is equivalent to say that a car can be produced by 2 engines with 3 wheels and a half of a radiator, etc.

Such a concept is evidently ridiculous. Normally, the proportions of inputs

(labor hours for a labor of specified skill, parts and components, materials and so on) are strictly determined by the design of the product or by the work procedures. These relations are better expressed in an input vector form

(l1, l2, a1, a2, ... , an) -> e(j)　　　　　　　(3)

where e(j) expresses a unit of product j.

To avoid the above evident ridicule, the neoclassical economics has invented that the formula (1) is only valid in aggregate forms. But if aggregated production of a nation is a sum of productive activities of various industries of the nation, formula (1) should be explained as an aggregation of some types of productions in the form of (3). But it does not work. For the details on this point, please read Felipe and McCombie's papers, for example

How Sound Are the Foundations of the Aggregate Production Function?https://www.jstor.org/stable/40326425?seq=1#page_scan_tab_contents

The factor proportion theory is undermined on its very basis of the theory. It is quite natural that some of its predictions are falsified. What Liliana Meza Gonzalez has found is only one of many examples of "anomalies" or counter examples for HOS theory.

Now what is happening in the real world? It is true that many production activities are transferred from advanced countries to less developed countries. This transfer of industrial activities is not a transfer from capital abundant countries to labor abundant countries. The transfer is based on cost accounting. If one can produce the same quality of product in a country where wage rate is one tenth or one 15th of the original country, it is easy to get a better cost performance than in the high wage rate country. See the detail, sections 12 and 13 in my paper on international values:

The New Theory of International Values: An Overview

Chapter 1 in A New Construction of Ricardian Theory of International Values, Springer, 2017.

If we think that production (at least production in modern industry) takes the form (3), it is quite possible that high skill labor is more demanded than low skilled labor depending on the production techniques transferred. For example, one cannot replace engineering works by road sweepers. I believe this reconfirms Hubert Escaith's observation in his comment four months ago.

Transfer of production site from one country to another is a form of technology transfer, because it means that host country becomes to possess a new production technique (production process). But this technology transfer most often accompanies small change of coefficients in (3). Labor inputs and transportation inputs are often increased. Even in that case, if the wage discrepancy between transferred country and transferring country is sufficiently great. Yuri Mansury is right in pointing that "Not all technological changes are the same." However, the classification of technology change types into Hicks-neutral, Harrod-neutral, and Solow-neutral technological changes is only a rough one. It is also necessary to note that these neutrality concepts are invented not by observations but by the necessity of model buildings that are quit similar to the factor proportion theory. They all assumes formula (1) and argue the change of input proportions when production functions were supposed to be changed.