Thanks to Rodrik’s literary style (as quoted in the previous post), we can skip right over the technical issues… What does Stolper-Samuelson tell us if owners of factors own diversified portfolios of those factors?
Let me set this up a little:
Its the Marxist Fallacy to assume people can be neatly divided into classes. Marxist talk about the proletariat and the bourgeoisie; economists talk about high and low skill workers. Both commit the Marxist Fallacy.
For Marx, exploitation by bosses of workers drove wage differences and he ignored the fact that most people, while being someone’s underling, are someone else’s boss. The facts he didn’t confront are that the customer is always right (and we’re all customers) and that there’s very few leaf nodes in social graphs. Also, most people know the statistics on the percentage of Americans that own stocks; Marx’ narrative of capital against labor doesn’t make sense.
For economists, skill, measured by years of schooling, determines wage differences. The more skilled you are — i.e. the more hours you spend in the classroom — the more productive you’ll be on the job and thus the higher you’ll be paid. Economists ignore other types of skill.
With a change in trade or some other economic innovation, the Marxist Fallacy leads to an interpretation of the Stolper-Samuelson theorem like this:
The theorem does not identify who exactly will lose out. The loser in question could be the wealthiest group in the land. But if the good in question is highly intensive in unskilled labor, there is a strong presumption that it is unskilled workers who will be worse off.
Rodrik is conflating the supply of unskilled labor inputs and the suppliers of those inputs. There may be less demand in the U.S. for unskilled labor inputs, but that doesn’t necessarily mean there’s a reduction in the demand for the suppliers of that labor. A person may “own” both skill and unskilled factors, but only provide one to the labor market. This seems strange in the context of the binary skilled/unskilled framework, but in a more realistic multi-dimensional framework, this seems more tenable. For example, suppose skills can be decomposed into communication skills and tool-using skills. Trade may make demand for the latter decrease but the demand for the former increase, but the same person may have both types of skill. Who is hurt by trade in this case?
Given the special nature of labor supply ((its constrained by the 24-hour day and its lumpy… but I don’t think a spelled out theory would need to use these features of labor)), disentangling input supply and their suppliers is important. If before trade, tools-wielding was higher paid than communicating, then the person with both skills would supply only the first. After trade, when relative factor prices change and communication skills get higher paid, that person will change his or her supply. What’s the overall impact on the wage structure?
I don’t think Stolper-Samuelson gives us an answer.