1) Specific Factor Model: the rise of the "techies" In the US, suppose that the production of services relies on "tech" engineers T and regular labor L5, with the following production function: Y5 = T1/2 LS"2 and the production of Manufacturing relies on K and LM, with: YM = K1'2LM1'2 . "Tech" engineers are only employed in services while regular labor is mobile between service and manufacturing. K is used only in Manufacturing. a) What is the marginal product of labor (MPL) in each industry, depending on LM and L5? b) Following a change in exposure to trade, relative employment in Manufacturing vs. Services

decreases by 4%. Deduce by how much the relative price of Manufacturing has decreased. c) Do "tech" engineers gain more from trade exposure compared to regular workers? Explain.