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.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.zew.de/Email:
More information through EDIRC
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.:
- 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.
- 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.
- 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.
- 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.
- 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.
- Michael Funke & Felix FitzRoy, 1995.
"Skills, Wages, and Employment in East and West Germany,"
IMF Working Papers
95/4, International Monetary Fund.
- Felix Fitzroy & Michael Funke, 1998. "Skills, Wages and Employment in East and West Germany," Regional Studies, Taylor & Francis Journals, vol. 32(5), pages 459-467.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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:zbw:zewdip:5382. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.