Advanced Search
MyIDEAS: Login to save this paper or follow this series

Costly Investment, Complementarities and the Skill Premium

Contents:

Author Info

  • Óscar Afonso

    ()
    (CEFUP, OBEGEF, Faculdade de Economia, Universidade do Porto)

  • Maria Thompson

    ()
    (NIPE, Escola de Economia e Gestão, Universidade do Minho)

Registered author(s):

    Abstract

    We propose a new framework to analyse the wage premium behaviour. Building on Acemoglu and Zilibotti (2001), we introduce physical capital and two assumptions: (i) internal costly investment in both capital and R&D; (ii) complementarities between capital goods in production. We find that, for economies relatively abundant in high-skilled labour, a rise in the relative endowment of high-skilled labour is accompanied by a rise in the skill premium. We further find that a rise (i) in investment costs or (ii) in the complementarities degree, requires an increase in the relative endowment of high-skilled labour, for the economy to remain in the same growth equilibrium. For economies relatively abundant in high-skilled labour, such rises are also accompanied by an increase in the skill premium.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.fep.up.pt/investigacao/workingpapers/09.04.28_wp323.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 323.

    as in new window
    Length: 18 pages
    Date of creation: Apr 2009
    Date of revision:
    Handle: RePEc:por:fepwps:323

    Contact details of provider:
    Postal: Rua Dr. Roberto Frias, 4200 PORTO
    Phone: 351-22-5571100
    Fax: 351-22-5505050
    Email:
    Web page: http://www.fep.up.pt/
    More information through EDIRC

    Related research

    Keywords: R&D; Technological-Knowledge Bias; Wage Inequality; Complementarities; Costly Investment;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 531-55, May.
    2. Acemoglu, Daron & Zilibotti, Fabrizio, 1998. "Productivity Differences," Seminar Papers, Stockholm University, Institute for International Economic Studies 660, Stockholm University, Institute for International Economic Studies.
    3. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
    4. George Evans & Seppo Honkapohja & Paul Romer, 1996. "Growth Cycles," NBER Working Papers 5659, National Bureau of Economic Research, Inc.
    5. Acemoglu, Daron, 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1707, C.E.P.R. Discussion Papers.
    6. Daniel Fernandez Kranz, 2006. "Why has wage inequality increased more in the USA than in Europe? An empirical investigation of the demand and supply of skill," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(7), pages 771-788.
    7. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
    8. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
    9. Hui He & Zheng Liu, 2007. "Investment-specific technological change, skill accumulation, and wage inequality," Working Papers, Federal Reserve Bank of Minneapolis 644, Federal Reserve Bank of Minneapolis.
    10. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(2), pages 701-729, June.
    11. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 21-48, January.
    12. Benavie, Arthur & Grinols, Earl & Turnovsky, Stephen J., 1996. "Adjustment costs and investment in a stochastic endogenous growth model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(1), pages 77-100, August.
    13. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 371-92, June.
    14. Rosario Crinò, 2005. "Wages, Skills, and Integration in Poland, Hungary and the Czech Republic: an Industry-level Analysis," Transition Studies Review, Springer, Springer, vol. 12(3), pages 432-459, December.
    15. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 33-55, Summer.
    16. Maria Thompson, 2008. "Complementarities and costly investment in a growth model," Journal of Economics, Springer, Springer, vol. 94(3), pages 231-240, September.
    17. Oscar Afonso, 2006. "Skill-biased technological knowledge without scale effects," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(1), pages 13-21.
    18. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, Elsevier, vol. 64(2), pages 387-409, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:por:fepwps:323. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.