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The Heckscher Ohlin Model

Discuss the implications of low-skilled worker immigration into the UK for UK wages, trade and output within the framework of the Heckscher Ohlin model.

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The simple version is that factor endowments are the critical variables that determine comparative advantage. Normally, we think in terms of labor productivity. That's a problem since the United States has become deindustrialized even through they have the greatest labor productivity in the world.

Labor productivity is canceled out by factor endowments in the H-O model. The level of technology or education that increases productivity is compensated for through the abundance of whatever factor makes that country competitive.

One can argue - using this model - that the US is deindustrialized because Chinese labor is abundant, educated, motivated and willing to work for low wages. Hence, that factor is China's ticket to success - and it explains who the far superior productivity of the US or UK worker does not seem to matter.

This also does not acknowledge the labor theory of value saying only that profits come from how inexpensive their input costs are. This implies that a country will export those goods only in the areas in which they have the relevant factor in abundance. They move to export because they will always produce an excess. Note, too, that this implies there are no returns to scale.

Stolper-Samuelson stresses that the rise in the price of a commodity traded internationally will create a proportional return on that specific factor most intensively use in its creation. This makes sense only because it is that factor that makes an economy what it is. ...

Solution Summary

The relationship between immigration workers and profitability and prodution in the UK is addressed.