| This paper is concerned about addressing a question that has become critical in international trade, during the past three decades: 'What explains the worldwide increase in skill premiums following international trade integration and increasingly globalized economies'? I propose a new theory to address this question by presenting, testing, and quantifying a new empirically consistent framework of firm organization. In this model, I show how trade liberalization will result in reallocation of high skilled workers within an industry towards more productive firms and exporters. Specifically, it induces both old and new exporters to choose a higher degree of labor specialization within high-skilled or low-skilled workers, to reduce their marginal costs, and to evolve into more skill-intensive entities. I further demonstrate how these internal organizational amendments directly affect skill intensity and the skill premium in a general equilibrium setting. Lastly, I calibrate this model to Mexican data to actually quantify the rise in skill premiums after trade-integrations. |
