Consider the Grossman-Rossi Hansberg model of offshoring. There are two goods: X and Y. Good X requires 4 units of unskilled labour to do Task 1 and 4 additional units of unskilled labour to do Task 2. Further
Consider the Grossman-Rossi Hansberg model of offshoring. There are two goods: X and Y. Good X requires 4 units of unskilled labour to do Task 1 and 4 additional units of unskilled labour to do Task 2. Further, 2 units skilled labour is also necessary to organize production of Good X. Good Y requires 2 units of unskilled labour to do Task 1 and 2 additional units of unskilled labour to do Task 2. Besides, 4 units skilled labour is also necessary to organize production of Good Y. The prices of both goods are fixed on world markets at $24 per unit. Initially, all tasks were performed domestically, but now it becomes possible to perform Task 1 in another country (offshoring) for free.
(a) What is the wage skilled and unskilled workers receiving before offshoring? Show your work.
(b) What is the wage skilled and unskilled workers receiving after offshoring? Show your work.
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