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Capital-skill complementarity and inequality: a sensitivity analysis

  • Linnea Polgreen
  • Pedro Silos

In “Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis,” Krusell et al. (2000) analyzed the capital-skill complementarity hypothesis as an explanation for the behavior of the U.S. skill premium. This paper shows that their model’s fit and the values of the estimated parameters are very sensitive to the data used: Alternative measures of the capital series predict skill premia that bear little resemblance to the data. We also include ten additional years of data to address the claim made by other authors that the evolution of the skill premium changed during the 1990s, but we find little evidence of this change.

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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 2005-20.

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Date of creation: 2005
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Handle: RePEc:fip:fedawp:2005-20
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  1. Peter N. Ireland, 1999. "A method for taking models to the data," Working Paper 9903, Federal Reserve Bank of Cleveland.
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  15. Lindquist, Matthew J., 2002. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Research Papers in Economics 2002:14, Stockholm University, Department of Economics, revised 01 Sep 2003.
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  21. Linnea Polgreen & Pedro Silos, 2005. "Capital-skill complementarity and inequality: a sensitivity analysis," FRB Atlanta Working Paper 2005-20, Federal Reserve Bank of Atlanta.
  22. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  23. Blankenau, William F. & Ingram, Beth F., 2002. "Welfare Implications Of Factor Taxation With Rising Wage Inequality," Macroeconomic Dynamics, Cambridge University Press, vol. 6(03), pages 408-428, June.
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