Capital-skill complementarity in firms and in the aggregate economy

Berlingieri, Giuseppe, Boeri, Filippo ORCID: 0000-0001-8249-104X, Lashkari, Danial and Vogel, Jonathan (2024) Capital-skill complementarity in firms and in the aggregate economy. CEP Discussion Papers (CEPDP2037). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We study capital-skill complementarity in a multi-sector framework featuring firm-specific, multi-factor production functions and allowing for firm-specific factor-price wedges. We characterize the elasticity of the skill premium to the price of capital equipment in terms of firm-level elasticities of substitution across factors, elasticities of substitution across firms and sectors, and factor intensities. Using French data, we provide credible identification of these firm-level elasticities. Combining these elements we offer the first identification of aggregate capital-skill complementarity that allows for arbitrary trends in the unobservable skill-bias of productivity at the firm, industry, and aggregate levels. We find an economically and statistically significant degree of aggregate capital-skill complementarity, but this force alone is insufficient to generate the full increase in the relative demand for high-skilled workers observed in the data. There is a substantial role for skill-augmenting technical change not embodied in capital equipment.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author(s)
Divisions:	Centre for Economic Performance Geography & Environment
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E25 - Aggregate Factor Income Distribution J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General
Date Deposited:	10 Feb 2025 16:36
Last Modified:	10 Feb 2025 16:36
URI:	http://eprints.lse.ac.uk/id/eprint/126751

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