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Capital-Skill Complementarity and Inequality: Twenty Years After

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  • Maliar, Serguei
  • Tsener, Inna

Abstract

A seminal work of Krusell, Ohanian, Ríos-Rull and Violante (2000) demonstrated that the capital-skill-complementarity mechanism is capable of explaining a U-shaped skill premium pattern over the 1963-1992 period in the US economy. However, the world experienced an unprecedented technological change since then. In this paper, we ask how the finding of their article change if we consider more recent data. First, we find that over the 1992-2017 period, the skill premium pattern changed dramatically, from a U-shaped to monotonically increasing, however, the capital-skill complementarity framework remains remarkably successful in explaining the data. Second, we use this framework to construct a projection, and we conclude that the skill premium will continue to grow in the US economy.

Suggested Citation

  • Maliar, Serguei & Tsener, Inna, 2020. "Capital-Skill Complementarity and Inequality: Twenty Years After," CEPR Discussion Papers 15228, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15228
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    References listed on IDEAS

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    Cited by:

    1. Castex, Gonzalo & (Stanley) Cho, Sang-Wook & Dechter, Evgenia, 2022. "The decline in capital-skill complementarity," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    2. Stelios Sakkas & Petros Varthalitis, 2021. "Public Debt Consolidation and its Distributional Effects," Manchester School, University of Manchester, vol. 89(S1), pages 131-174, September.
    3. Stephen J. Turnovsky & Zinan Wang, 2022. "The Effects of Globalization on Skilled Labor, Unskilled Labor, and the Skill Premium," Open Economies Review, Springer, vol. 33(3), pages 407-452, July.
    4. Balza, Lenin H. & De Los Rios, Camilo & Guerra, Alfredo & Herrera-Prada, Luis Omar & Manzano, Osmel, 2023. "Unraveling the network of extractive industries," Resources Policy, Elsevier, vol. 85(PB).
    5. Ozlem Kina & Ctirad Slavik & Hakki Yazici, 2020. "Redistributive Capital Taxation Revisited," CERGE-EI Working Papers wp674, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Lee Ohanian & Musa Orak & Shihan Shen, 2023. "Revisiting Capital-Skill Complementarity, Inequality, and Labor Share," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 479-505, December.

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    More about this item

    Keywords

    Skill premium; Capital-skill complementarity; Ces production function; Skilled and unskilled labor;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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