Adriana Barone, Concetto Paolo Vinci

The Fair Wage-Effort Hypothesis and Factor Intensity Reversals

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In this paper we consider the Bhagwati-Srinivasan model (1971) which takes into account the impact of wage differentials on production response and Factor-Price Equalization Theorem. We modify it by introducing the fair wage-effort hypothesis. The most interesting result concerns the relationship between factor intensity and wage rewards: the main theorems of international trade hold if workers of the capital intensive sector receive higher wages while, if higher wages are received by workers in the labour intensive sector, the theorems do not hold.

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