Labor Specialization and the Impact of International Trade on the Skill Premium

This paper is concerned about addressing a question that has become critical in in-ternational trade, during the past three decades: What factors explain the worldwide increase in skill premiums following international trade integration and increasingly globalized economies? I propose a new theory to address this question through the lens of \u85rm organization and labor specialization. In this model, I show how trade lib-eralization will result in reallocation of high skilled workers within an industry towards more productive \u85rms and exporters. Speci\u85cally, reducing trade costs induces new exporters to choose a higher degree of labor specialization within high-skilled or low-skilled workers, to reduce their marginal costs, and to evolve into more skill-intensive entities. I further demonstrate how these internal organizational changes directly a¤ect aggregate skill intensity and the skill premium in a general equilibrium setting. Lastly, I calibrate this model to Mexican data to quantify the rise in the skill premium in th