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Capital-skill complementarity and biased technical change across US sectors

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  • Perez-Laborda, Alejandro
  • Perez-Sebastian, Fidel

Abstract

The goal of this paper is two-fold. First, we reexamine the evidence for the capital-skill complementarity (CSC) and the skill-biased technological change (SBTC) hypotheses at the sectoral level in the US economy for the period 1970–2005. Second, we quantify their effect on the evolution of the wage skill premium. To do so, we estimate a translog model with three production factors (skilled labor, unskilled labor, and capital) for different sets of industry aggregates suggested by the literature. At the aggregated level, we find that both CSC and SBTC explain a substantial part of the observed change in the skill premium. The CSC hypothesis also receives support across sectors, although SBTC often explains a larger part of the premium change. We also find that the relevance of CSC increases with the level of aggregation of the data. Besides, when we disaggregate capital into ICT and non-ICT, our results suggest that often ICT capital is not the primary source of CSC. However, ICT-CSC is the most important driver of the skill premium in specific sectors, such as financial and business services.

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  • Perez-Laborda, Alejandro & Perez-Sebastian, Fidel, 2020. "Capital-skill complementarity and biased technical change across US sectors," Journal of Macroeconomics, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:jmacro:v:66:y:2020:i:c:s0164070420301804
    DOI: 10.1016/j.jmacro.2020.103255
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    3. Chu, Yihe & Li, Yujia & Che, Ming, 2024. "Population aging and the dynamics of the skill income gap: An analysis of a multiple mediation effect," Finance Research Letters, Elsevier, vol. 62(PB).
    4. Takeuchi, Fumihide, 2023. "Intermediate goods-skill complementarity and income distribution," MPRA Paper 116372, University Library of Munich, Germany.
    5. Muhamad Khalil Omar & Idaya Husna Mohd & Mohd Zulhafiz Wan Zahari & Nurhidayah Azmy, 2024. "Hybrid Skills Framework in The IR4.0 and Recruitment Decisions in Hiring Graduates: A Malaysian Employer’s Perspective," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 252-273, July.

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    More about this item

    Keywords

    Capital-skill complementarity; Biased technical change; Skill premium; Labor share; Translog; ICT capital;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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