Heckscher-Ohlin Model with Assignment Problem with Skilled and Unskilled Labor

In this work, I construct an extended model of the Heckscher-Ohlin model, in which there is an assignment problem of how to assign workers to two types of endowments, skilled and unskilled labor. In the comparative statics for a small open economy, when product prices change, the outputs change more than in the HeckscherOhlin model. In the comparative statics for a whole economy, when consumer tastes or production technologies change, the product prices change less than in the HeckscherOhlin model. Furthermore, a greater elasticity of substitution between endowments causes a greater extent of change in the outputs for a small open economy and a lesser extent of change in the product prices for a whole economy. These results explain why we see different kinds of relationships between wage changes and other economic changes. Keyword: Heckscher-Ohlin model, assignment model, heterogeneous agents, income differentials JEL Classification: D33, F11, F61, I31, J31