SKILLS AND CHANGING COMPARATIVE ADVANTAGE Edward N. Wolff* Abstract.—Using U.S. input-output data for the period 1947–1996 and the share of information workers “embodied” in trade over Dictionary of Occupational Titles skill scores, I find that U.S. exports have a high content in cognitive and interactive skills relative to imports, and a the same period. Statistics are provided on the total capital, low content in motor skills. Moreover, the skill gap between exports and equipment, computer, and R&D content of U.S. trade flows imports has widened over time. Imports are more capital- and equipment- over the years 1947 to 1996, as well as on the relative labor intensive than exports, but the difference has fallen over time. By 1987 exports were more computer-intensive than imports. In contrast, though costs and productivity performance of U.S. exports and exports were more R&D-intensive than imports in 1958, they were imports. On the basis of input-output data, it will be possible slightly lower in 1996. Labor productivity also rose faster in export than to compute both the direct and indirect content of trade. in import industries, and the unit labor cost of exports declined relative to imports. I find that comparative advantage in U.S. international trade has been in industries high in cognitive and interactive I. Introduction skills and low in motor skills, and the skill gap between exports and imports has widened over time. U.S. exports HIS paper considers the relation between the changing also have a high content of knowledge workers and a low Tskill base of the U.S. labor force and the country’s content of goods workers relative to imports, and the gap shifting comparative advantage in the international arena. has grown over time as well. The results also show that Standard trade theory predicts that a country will export imports are more capital- and equipment-intensive than those products that intensively use those endowments in exports but in this case the difference has fallen over time. which it is favored relative to the other countries of the Moreover, by 1987 exports were more intensive in office, world and import products which are intensive in endow- computing, and accounting equipment (OCA) than imports. ments that are scarce in that country. It was generally In contrast, whereas in 1958 the R&D intensity of U.S. believed, for example, that the U.S. exported capital- exports was much greater than that of imports, by 1996 the intensive goods and imported labor-intensive ones, but em- R&D intensity of imports was slightly greater than that of pirical work showed that U.S. exports tended to be human- exports. I also find that labor productivity rose faster in capital-intensive, and imports capital-intensive (the so- export than in import industries and the unit labor cost of called Leontief paradox). export industries relative to import industries declined al- In this paper, I investigate the skill composition of ex- most steadily over time. ports and imports. Does the U.S. tend to export products that Section II of this paper reviews the previous literature on embody high-skill labor and import those that embody the skill composition of trade. Section III develops the low-skill labor? How have these trade patterns changed over accounting framework used in the analysis. Section IV time? Do they reflect the changing skill composition of the presents descriptive statistics on the composition of U.S. U.S. labor force, which has shifted in favor of cognitive and trade over the period from 1947 to 1996. The factor content interactive skills and away from motor skills? With the of trade is analyzed in Section V. Concluding remarks are growth of the information economy (assuming that we are made in Section VI. in the forefront of the world in that dimension as well), is the U.S. comparative advantage shifting in that direction as II. Review of Previous Literature well? A related issue regards the R&D intensity of U.S. trade. A. The Heckscher-Ohlin Model During the 1960s and 1970s the major export strength of the There are two distinct approaches used to explain why U.S. lay in industries whose research was heavily subsi- different countries will specialize in different industries with dized by the U.S. government (particularly, the Department regard to trade patterns. The first is the Heckscher-Ohlin of Defense), including aircraft, armaments, mainframe com- model with factor-price equalization (see Heckscher [1919] puters, and medical equipment (see Dollar & Wolff, 1993). 1949; Ohlin, 1933). The key assumption in the model is that Is the U.S. still exporting R&D-intensive products? all countries face the same technology but differ in the The data analysis is based on U.S. input-output data relative abundance of factors of production, from which it covering the period 1947 to 1996, and on U.S. Census of can be shown that factor prices will be equalized across Population data on employment by occupation and industry, countries. In the original Heckscher-Ohlin formulation, the education, and skills for decennial Census years 1950, 1960, proof is based on a two-good, two-factor model. Vanek 1970, 1980, and 1990. I present statistics on the skill and (1968) extended the model to the multigood, multifactor educational content of U.S. exports and imports over the case. The model is now referred to as the Heckscher-Ohlin- period from 1950 to 1990. Calculations are also provided of Vanek (or HOV) model. The model was further generalized by Deardorff (1982). The main implication of this model is Received for publication February 25, 2000. Revision accepted for publication July 24, 2001. that trade specialization is dictated by relative factor abun- * New York University and the National Bureau of Economic Research. dance. In particular, a country will export products that use The Review of Economics and Statistics, February 2003, 85(1): 77–93 © 2003 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/003465303762687721 by guest on 28 September 2021 78 THE REVIEW OF ECONOMICS AND STATISTICS intensively those factors in which it is relatively abundant computed both the labor and the capital requirement of the and import products that use intensively those factors which net exports of a set of countries on the basis of the technol- are relatively scarce in it. ogy matrix of a single country (the United States). He then This prediction has been subjected to a long series of compared the labor and capital requirements with the na- studies. There are two types. The first involves comparing tional endowments of both labor and capital to determine the resource content of exports with that of the domestic whether the Leontief paradox held. This was generally substitutes for imported products in a single country. This is confirmed. He then relaxed the assumption of factor-price legitimate because by the assumptions of the HOV model, equalization and showed that cross-country differences in the technology used in a country to produce products which factor prices could account for the fact that more capital- are imported is the same as that used in other countries to abundant countries had net exports that were labor inten- produce these products. Moreover, the factor prices faced in sive, and vice versa. the countries are the same, so that relative costs are identi- cal. B. The Technology Gap Model The most widely known tests of the effects of relative factor endowments on trade patterns were conducted by The second approach for analyzing trade patterns among Leontief (1956, 1964) using input-output data for the United countries derives from Ricardian trade theory, which em- States. The main finding is that despite the fact that the phasizes intercountry differences in technology and factor United States was then the most capital-intensive country in prices. The modern variant of the Ricardian approach is the the world, it exported goods that were relatively labor- technology gap model, whose central premise is that tech- intensive and imported goods that were relatively capital- nology gaps and differences in innovativeness between intensive. This phenomenon became known as the Leontief countries will be a major source of trade flows (see, for example, Posner (1961) or Fagerberg (1988)). Whereas the paradox. Many explanations were offered for it. These HOV model is essentially a static model, the technology gap include (1) R&D differences among countries, (2) skill model emphasizes technical change as the key source of differentials, (3) differences in educational attainment and (changing) comparative advantage. other human capital attributes; and (4) relative abundance of Empirical analysis of this model relies on using cross- land and other natural resources (see Caves (1960) for more national data to compare trade patterns and technology discussion). The first three factors will be examined in indicators. Dosi, Pavitt, and Soete (1990), using data for 40 section IV. manufacturing industries over the 1963–1977 period, found The second type of test involves comparing trade patterns that patenting activity was a significant determinant of between two or more countries and relating these patterns to export share among OECD countries, with the exception of differences in factor abundance. One of the earliest of these several resource-based industries and several in which pat- studies was by MacDougall (1951, 1952), who compared ents are not a reliable indicator of innovative activity. Other British and American exports to see whether the British variables that generally proved significant were labor pro- share of capital-intensive exports was smaller than the ductivity and capital intensity.