 Capital-skill complementarity in manufacturing: Lessons from the US shale boomVictor Hernandez Martinez European Economic Review, 2025, vol. 178, issue C Abstract: This paper tests the existence of capital-skill complementarity in the manufacturing sector using quasi-experimental increases in the relative price of low-skill labor induced by the US shale boom. I find that in response to the shale boom, local manufacturing firms decreased their relative usage of low-skill labor while increasing their capital expenditures. These endogenous changes in the input mix allowed manufacturers to maintain the value added despite the increase in the price of low-skill labor, avoiding the potential short-term crowding-out effects of the natural resource boom. These findings perfectly match the predictions from a nested CES manufacturing production function where capital and low-skill labor are nested together, and their elasticity of substitution exceeds that between capital and high-skill labor. Alternative production functions yield predictions that are inconsistent with the data or hard to reconcile with the previous literature. Keywords: Capital-skill complementarity; Manufacturing; Fracking; Labor markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:178:y:2025:i:c:s0014292125001229 DOI: 10.1016/j.euroecorev.2025.105072 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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