Revisiting Capital-Skill Complementarity, Inequality, and Labor Share

Lee Ohanian, Musa Orak and Shihan Shen

Review of Economic Dynamics, 2023, vol. 51, 479-505

Abstract: This paper analyzes the quantitative contribution of capital-skill complementarity in accounting for rising wage inequality, as in Krusell, Ohanian, Rios-Rull, and Violante (KORV, 2000). We study how well the KORV framework accounts for more recent data, including the large changes in labor's share of income that occurred after the KORV estimation period ended. We also study how using information and communications technology (ICT) capital as the complementary capital stock affects the model's implications for inequality and overall model fit. We find significant evidence for continued capital-skill complementarity across all model permutations we analyze. Despite nearly 30 years of additional data, we find very little change to the original KORV estimated substitution elasticity estimates when the total stock of capital equipment is used as the complementary capital stock. We find much more capital-skill complementarity when ICT capital is used. The KORV framework continues to closely account for rising wage inequality through 2019, though it misses the three-percentage point decline in labor's share of income that has occurred since 2000. (Copyright: Elsevier)

Keywords: Capital-skill complementarity; elasticity of substitution; inequality; labor share; skill premium; technological change (search for similar items in EconPapers)
JEL-codes: E25 J24 J31 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2023.05.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Revisiting Capital-Skill Complementarity, Inequality, and Labor Share" (2023)
Working Paper: Revisiting Capital-Skill Complementarity, Inequality, and Labor Share (2021)
Working Paper: Revisiting Capital-Skill Complementarity, Inequality, and Labor Share (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:21-129

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2023.05.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().