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Can Capital-Skill Complementarity Explain the Rising Skill Premium in Developing Countries? Evidence from Peru in the 1990s

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Listed:
  • Joy Mazumdar
  • Myriam Quispe-Agnoli

    (Mercer University, Eugene W. Stetson School of Business and Economics)

Abstract

The unsettled discussion continues about the factors behind the increase in the relative wages ofskilled workers in developing countries. Using data from Peru for the years 1994 to 2000, we analyze the determinants of within-industry share of skilled workers. We use a translog cost function for gross output and are therefore able to incorporate the effects of materials, both domestic and imported, in addition to capital. We find that capital accumulation can explain a large fraction of the increase in the wage bill share and relative wages of skilled labor. This finding is contrary to the commonly held view that unobservable technological change is responsible for the rising skill premium in both developing and developed economies. A test for separability indicates that a gross output cost function is the appropriate one to use, and therefore share equations based on value-added cost functions could be misspecified.

Suggested Citation

  • Joy Mazumdar & Myriam Quispe-Agnoli, 2019. "Can Capital-Skill Complementarity Explain the Rising Skill Premium in Developing Countries? Evidence from Peru in the 1990s," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 42(83), pages 75-94.
    • Handle: RePEc:pcp:pucrev:y:2019:i:83:p:75-94
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Skill premium; Capital-skill complementarity; Capital accumulation; Peru;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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