Trade and Factor Prices in a Model of Capital Utilization.

This paper will be concerned with the introduction of endogenous capital utilization into one of the sectors of the standard two-factor two-sector model of trade. There are two fundamentally different ways in which this introduction can take place. In the first approach as each firm increases its level of capital utilization, it in effect imposes abnormal hours of work on its existing labor force and it must increase the wage premium for labor during abnormal hours. In this model the firm's optimal level of capital utilization occurs where the increased wage premium from the increase in abnormal-hours work balances the saving of capital costs from the increase in capital utilization. We have presented a two-sector model in which there are essentially three factors of production, day labor, night labor, and capital. Workers differ in their distaste for day and night work and they move between the two times in response to the ratio of the two wages. Since night labor constitutes a third factor of production in this model, the Stolper-Samuelson and Rybcynski theorems are no longer valid. The striking contrast between these results and those of the single-labor-market model was noted in the introduction. [ABSTRACT FROM AUTHOR]