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Skill Complementarity in Production Technology: New Empirical Evidence and Implications

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  • Stoyanov, Andrey

    (York University, Canada)

  • Zubanov, Nick

    (University of Konstanz)

Abstract

Matched worker-firm data from Danish manufacturing reveal that 1) industries differ in within-firm worker skill dispersion, and 2) the correlation between within-firm skill dispersion and productivity is positive in industries with higher average skill dispersion. We argue that these patterns are a manifestation of technological differences across industries: firms in the "skill complementarity" industries profit from hiring workers of similar skill level, whereas firms in the "skill substitutability" industries benefit from hiring workers of different skill levels. An empirical method we devise produces a robust classification of industries into the distinct complementarity and substitutability groups. Our study unveils hitherto unnoticed technological heterogeneity between industries within the same economy, and demonstrates its importance. Specifically, we show through simulations on a simple general equilibrium model that failing to take technological heterogeneity into account results in large prediction errors.

Suggested Citation

  • Stoyanov, Andrey & Zubanov, Nick, 2019. "Skill Complementarity in Production Technology: New Empirical Evidence and Implications," IZA Discussion Papers 12433, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12433
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    References listed on IDEAS

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    1. Benoît Mahy & François Rycx & Mélanie Volral, 2011. "Does Wage Dispersion Make All Firms Productive?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(4), pages 455-489, September.
    2. Benoît Mahy & François Rycx & Mélanie Volral, 2011. "Wage Dispersion and Firm Productivity in Different Working Environments," British Journal of Industrial Relations, London School of Economics, vol. 49(3), pages 460-485, September.
    3. Susana Iranzo & Fabiano Schivardi & Elisa Tosetti, 2008. "Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 247-285, April.
    4. Thierry Lallemand & Robert Plasman & François Rycx, 2009. "Wage Structure and Firm Productivity in Belgium," NBER Chapters, in: The Structure of Wages: An International Comparison, pages 179-215, National Bureau of Economic Research, Inc.
    5. Wingender, Asger Moll, 2015. "Skill complementarity and the dual economy," European Economic Review, Elsevier, vol. 74(C), pages 269-285.
    6. Leo Kahane & Neil Longley & Robert Simmons, 2013. "The Effects of Coworker Heterogeneity on Firm-Level Output: Assessing the Impacts of Cultural and Language Diversity in the National Hockey League," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 302-314, March.
    7. Uwe Jirjahn & Kornelius Kraft, 2007. "Intra‐firm Wage Dispersion and Firm Performance – Is There a Uniform Relationship?," Kyklos, Wiley Blackwell, vol. 60(2), pages 231-253, May.
    8. Arngrim Hunnes, 2009. "Internal wage dispersion and firm performance: white-collar evidence," International Journal of Manpower, Emerald Group Publishing, vol. 30(8), pages 776-796, November.
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    More about this item

    Keywords

    skill dispersion; complementarity; production technology; firm productivity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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