Costly Investment, Complementarities and the Skill Premium

Oscar Afonso and Maria Thompson

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We propose a new framework to analyse the wage premium behaviour. Building on Acemoglu and Zilibotti (2001), we introduce physical capital and two assumptions: (i) internal costly investment in both capital and R&D; (ii) complementarities between capital goods in production. We find that, for economies relatively abundant in high-skilled labour, a rise in the relative endowment of high-skilled labour is accompanied by a rise in the skill premium. We further find that a rise (i) in investment costs or (ii) in the complementarities degree, requires an increase in the relative endowment of high-skilled labour, for the economy to remain in the same growth equilibrium. For economies relatively abundant in high-skilled labour, such rises are also accompanied by an increase in the skill premium.

Keywords: R&D; Technological-Knowledge Bias; Wage Inequality; Complementarities; Costly Investment (search for similar items in EconPapers)
JEL-codes: J31 O31 O33 O47 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2009-04
New Economics Papers: this item is included in nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Costly investment, complementarities and the skill premium (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:323

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