Rejecting capital-skill complementarity at all costs
Any serious empirical study of factor substitutability has to allow the data to display complementarity as well as substitutability. The standard approach reflecting this idea is a translog specification - this is also the approach used by numerous studies analyzing the relative capital-skill complementarity hypothesis formulated by GRILICHES (1969). According to this hypothesis, the degree of substitutability between skilled labor and capital is lower than that for unskilled labor and capital. Yet, the results of empirical studies investigating this hypothesis are controversial. This paper offers a straightforward explanation: Using a translog approach reduces the issue of factor substitutability or complementarity to a question of cost shares. Our review of translog studies mentioned in HAMERMESH’s (1993) summary on the demand for heterogeneous labor demonstrates that this argument is empirically relevant - all these studies can be reconciled with each other on the basis of the cost-share argument.
(This abstract was borrowed from another version of this item.)
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Freeman, Richard B & Medoff, James L, 1982. "Substitution between Production Labor and Other Inputs in Unionized and Nonunionized Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 220-33, May.
- Felix Fitzroy & Michael Funke, 1998.
"Skills, Wages and Employment in East and West Germany,"
Taylor & Francis Journals, vol. 32(5), pages 459-467.
- Michael Funke & Felix FitzRoy, 1995. "Skills, Wages, and Employment in East and West Germany," IMF Working Papers 95/4, International Monetary Fund.
- Berger, Mark C., 1984. "Increases in energy prices, costs of production, and plant size," Journal of Economics and Business, Elsevier, vol. 36(3), pages 345-357, August.
- Berndt, Ernst R. & Morrisson, Catherine J., 1979. "Income redistribution and employment effects of rising energy prices," Resources and Energy, Elsevier, vol. 2(2-3), pages 131-150.
- Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 351-356.
- Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June.
- Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
- Manuel Frondel & Christoph M. Schmidt, 2002. "The Capital-Energy Controversy: An Artifact of Cost Shares?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 53-79.
- Turnovsky, Michelle H L & Donnelly, William A, 1984. "Energy Substitution, Separability, and Technical Progress in the Australian Iron and Steel Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(1), pages 54-63, January.
- Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
- Bergstrom, Villy & Panas, Epaminondas E, 1992. "How Robust Is the Capital-Skill Complementarity Hypothesis?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 540-46, August.
- Lutz Bellmann & Stefan Bender & Thorsten Schank, 1999. "Flexibility of Firms' Labor Demand: Substitutability or Complementarity," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(1+2), pages 109-126, July.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:80:y:2003:i:1:p:15-21. 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: (Zhang, Lei)
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.