Working Paper: CEPR ID: DP15228
Authors: Lilia Maliar; Serguei Maliar; Inna Tsener
Abstract: A seminal work of Krusell, Ohanian, Ríos-Rull and Violante (2000) demonstrated that the capital-skill-complementarity mechanism is capable of explaining a U-shaped skill premium pattern over the 1963-1992 period in the US economy. However, the world experienced an unprecedented technological change since then. In this paper, we ask how the finding of their article change if we consider more recent data. First, we find that over the 1992-2017 period, the skill premium pattern changed dramatically, from a U-shaped to monotonically increasing, however, the capital-skill complementarity framework remains remarkably successful in explaining the data. Second, we use this framework to construct a projection, and we conclude that the skill premium will continue to grow in the US economy.
Keywords: skill premium; capital-skill complementarity; CES production function; skilled and unskilled labor
JEL Codes: C73; D90; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital-skill complementarity (J24) | skill premium (J24) |
| increases in capital equipment (E22) | skill premium (J24) |
| increases in skilled labor (J24) | skill premium (J24) |
| skill premium dynamics (J24) | capital-skill complementarity (J24) |
| elasticity of substitution between equipment and unskilled labor (J24) | skill premium (J24) |
| elasticity of substitution between equipment and skilled labor (J24) | skill premium (J24) |