Multi-sector specific factors model with two mobile factors

This paper is an extension of the specific factors model to the study of relative wages by considering a multi-industry model with skilled and unskilled labor as the only mobile factors. We show that for changes in the price of a single industry, the impact on the skill premium is usually modest and sometimes the sign is the reverse of expectations. The elasticity of substitution between factors is critical for single-sector price changes. To generate a Stolper-Samuelson magnification effect, it is necessary to have a large number of price changes across industries intensive in either skilled or unskilled labor. (C) 2016 Elsevier Inc. All rights reserved.