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Capital-Skill Complementarity and Inequality: A Sensitivity Analysis

Author

Listed:
  • Linnea Polgreen

    (University of Iowa)

  • Pedro Silos

    (Federal Reserve Bank of Atlanta)

Abstract

In "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis", Krusell, Ohanian, Rios-Rull, and Violante (2000) (KORV hereafter) analyzed the capital-skill complementarity hypothesis as an explanation for the behavior of the U.S. skill premium. We re-fit KORV's model with two alternative capital equipment price series: one proposed by Greenwood et al. (GHK, 1997) and the official, revised National Income and Product Accounts (NIPA) data. We find that capital-skill complementarity is preserved, but other results were sensitive to the data used. Specifically, the fit of the model was similar to KORV's using the NIPA data, but not the GHK data. Also, both series produce estimates of the elasticity of substitution between unskilled labor and equipment that are substantially larger than KORV's estimates. (Copyright: Elsevier)

Suggested Citation

  • Linnea Polgreen & Pedro Silos, 2008. "Capital-Skill Complementarity and Inequality: A Sensitivity Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 302-313, April.
  • Handle: RePEc:red:issued:06-82
    DOI: 10.1016/j.red.2007.09.001
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    More about this item

    Keywords

    Capital-skill complementarity; Technological change; Equipment prices;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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