Working Paper: NBER ID: w21435
Authors: Jeanne Lafortune; Jos Tessada; Ethan Lewis
Abstract: This paper estimates the elasticity of substitution between capital and skill using variation across U.S. counties in immigration-induced skill mix changes between 1860 and 1930. We find that capital began as a q-complement for skilled and unskilled workers, and then dramatically increased its relative complementary with skilled workers around 1890. Simulations of a parametric production function calibrated to our estimates imply the level of capital-skill complementarity after 1890 likely allowed the U.S. economy to absorb the large wave of less-skilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.
Keywords: capital-skill complementarity; immigration; manufacturing; historical labor markets
JEL Codes: J24; N61; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Skill Ratios (J24) | Capital Intensity (E22) |
| Immigration of Less-Skilled Workers (J69) | Relative Wages of Less-Skilled Workers (F66) |
| Increased Capital Intensity (E22) | Mitigation of Decline in Relative Wages (F66) |
| Technological Advancements (O33) | Change in Capital and Labor Relations (P19) |
| Immigration (F22) | Local Skill Ratios (J29) |