Capital-skill complementarity in firms and in the aggregate economy

Giuseppe Berlingieri, Filippo Boeri, Danial Lashkari and Jonathan Vogel

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: capital-skill complementarity; capital equipment; income inequality; skill premium; CRESH (search for similar items in EconPapers)
Date: 2024-09-25
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Related works:
Working Paper: Capital-skill complementarity in firms and in the aggregate economy (2024)
Working Paper: Capital-Skill Complementarity in Firms and in the Aggregate Economy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp2037

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