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Capital-Skill Complementarity and Inequality: A Sensitivity Analysis

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Author Info
Linnea Polgreen (University of Iowa)
Pedro Silos (Federal Reserve Bank of Atlanta)

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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)

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File URL: http://dx.doi.org/10.1016/j.red.2007.09.001
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 2 (April)
Pages: 302-313
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Handle: RePEc:red:issued:06-82

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Related research
Keywords: Capital-skill complementarity; Technological change; Equipment prices;

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

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.:

  1. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2004. "Estimating Nonlinear Dynamic Equilibrium economies: A Likelihood Approach," PIER Working Paper Archive 04-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  3. Dennis, Enid & Smith, V Kerry, 1978. "A Neoclassical Analysis of the Demand for Real Cash Balances by Firms," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 793-813, October. [Downloadable!] (restricted)
  4. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-88, September. [Downloadable!] (restricted)
  5. Linnea Polgreen & Pedro Silos, 2005. "Capital-skill complementarity and inequality: a sensitivity analysis," Working Paper 2005-20, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  6. Matthew J. Lindquist, 2004. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 519-540, July. [Downloadable!] (restricted)
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  7. Peter N. Ireland, 1999. "A Method for Taking Models to the Data," Boston College Working Papers in Economics 421, Boston College Department of Economics. [Downloadable!]
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  8. Patricia Crifo-Tillet & Etienne Lehmann, 2004. "Why Will Technical Change Not Be Permanently Skill-Biased?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 157-180, January. [Downloadable!] (restricted)
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  10. 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. [Downloadable!]
  11. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October. [Downloadable!]
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  12. Lars Peter Hansen & Ellen R. McGrattan & Thomas J. Sargent, 1994. "Mechanics of forming and estimating dynamic linear economies," Staff Report 182, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  13. Otrok, Christopher, 2001. "On measuring the welfare cost of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 61-92, February. [Downloadable!] (restricted)
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  14. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October. [Downloadable!] (restricted)
  15. DeJong, D.N. & Ingram, B.F. & Whiteman, C.H., 1995. "Keynes vs. Prescott and Solow: Identifying Sources of Business Cycle Fluctuations," Working Papers 95-06, University of Iowa, Department of Economics.
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  16. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June. [Downloadable!] (restricted)
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  17. Geweke, John & Tanizaki, Hisashi, 2001. "Bayesian estimation of state-space models using the Metropolis-Hastings algorithm within Gibbs sampling," Computational Statistics & Data Analysis, Elsevier, vol. 37(2), pages 151-170, August. [Downloadable!] (restricted)
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  20. Francesco Caselli & Wilbur John Coleman, 2002. "The U.S. Technology Frontier," American Economic Review, American Economic Association, vol. 92(2), pages 148-152, May. [Downloadable!]
  21. Lutz Hendricks, 2004. "Why does educational attainment differ across U.S. states?," 2004 Meeting Papers 361, Society for Economic Dynamics. [Downloadable!]
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Full references

Cited by:
(explanations, 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.)

  1. 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. [Downloadable!] (restricted)
    Other versions:
  2. Michael Ben-Gad, 2006. "Capital-Skill Complementarity and the Immigration Surplus," DEGIT Conference Papers c011_047, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  3. Federico S. Mandelman & Andrei Zlate, 2008. "Immigration and the macroeconomy," Working Paper 2008-25, Federal Reserve Bank of Atlanta. [Downloadable!]
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