Aggregation, the skill premium, and the two-level production function
We examine the two-level nested Constant Elasticity of Substitution production function where both capital and labor are disaggregated in two classes. We propose a normalized system estimation method to retrieve estimates of the inter- and intra-class elasticities of substitution and factoraugmenting technical progress coefficients. The system is estimated for US data for the 1963-2006 period. Our findings reveal that skilled and unskilled labor classes are gross substitutes, capital structures and equipment are gross complements, and aggregate capital and aggregate labor are gross complements with an elasticity of substitution close to 0.5. We discuss the implications of our findings and methodology for the analysis of the causes of the increase in the skill premium and, by implication, inequality in a growing economy. JEL Classification: E25, J23, J24, O40
|Date of creation:||Nov 2011|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
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.:
- Daron Acemoglu, 2001.
"Directed Technical Change,"
NBER Working Papers
8287, National Bureau of Economic Research, Inc.
- León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2009.
"Identifying the elasticity of substitution with biased technical change,"
Working Paper Series
1001, European Central Bank.
- Miguel A. León-Ledesma & Peter McAdam & Alpo Willman, 2010. "Identifying the Elasticity of Substitution with Biased Technical Change," American Economic Review, American Economic Association, vol. 100(4), pages 1330-1357, September.
- Katz, L.F. & Murphy, K.M., 1991.
"Changes in Relative Wages, 1963-1987: Supply and Demand Factors,"
Harvard Institute of Economic Research Working Papers
1580, Harvard - Institute of Economic Research.
- Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
- 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.
- David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
- repec:lsu:lsuwpp:2003-12 is not listed on IDEAS
- K. Sato, 1967. "A Two-Level Constant-Elasticity-of-Substitution Production Function," Review of Economic Studies, Oxford University Press, vol. 34(2), pages 201-218.
- Chris Papageorgiou & Fidel Pérez Sebastián & John Duffy, 2002.
"Capital-Skill Complementarity? Evidence From A Panel Of Countries,"
Working Papers. Serie AD
2002-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
- Chris Papageorgiou & John Duffy & Fidel Perez-Sebastian, "undated". "Capital-Skill complementarity? Evidence from a Panel of Countries," Departmental Working Papers 2003-012, Department of Economics, Louisiana State University.
- Daron Acemoglu, 2002.
"Technical Change, Inequality, and the Labor Market,"
Journal of Economic Literature,
American Economic Association, vol. 40(1), pages 7-72, March.
- Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
- M. Piva & E. Santarelli & M. Vivarelli, 2003.
"The Skill Bias Effect of Technological and Organisational Change: Evidenceand Policy Implications,"
486, Dipartimento Scienze Economiche, Universita' di Bologna.
- Piva, Mariacristina & Santarelli, Enrico & Vivarelli, Marco, 2005. "The skill bias effect of technological and organisational change: Evidence and policy implications," Research Policy, Elsevier, vol. 34(2), pages 141-157, March.
- Piva, Mariacristina & Santarelli, Enrico & Vivarelli, Marco, 2003. "The Skill Bias Effect of Technological and Organisational Change: Evidence and Policy Implications," IZA Discussion Papers 934, Institute for the Study of Labor (IZA).
- James Heckman & Lance Lochner & Christopher Taber, 1998.
"Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
- James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
- repec:ucp:bknber:9780226304557 is not listed on IDEAS
- Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
- Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
- León-Ledesma, Miguel A. & McAdam, Peter & Willman, Alpo, 2010. "In dubio pro CES - Supply estimation with mis-specified technical change," Working Paper Series 1175, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20111400. 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: (Official Publications)
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.