English, Article edition: Capital-Skill Complementarity and Inequality Over the Business Cycle Matthew J. Lindquist

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Capital-Skill Complementarity and Inequality Over the Business Cycle
Author
  • Matthew J. Lindquist
Physical Description
  • article
Notes
  • When capital-skill complementarity is present in the production process, changes in the skill premium are driven not only by changes in the ratio of unskilled- to skilled labor inputs (as they are in the case with Cobb-Douglas production), but also by changes in the capital-skill ratio. A simple regression analysis demonstrates that the capital-skill ratio has a positive and significant relation to the skill premium at business cycle frequencies as predicted by the capital-skill complementarity hypothesis. This finding motivates the construction of a stochastic dynamic general equilibrium model which allows for capital-skill complementarity in production. The model with capital-skill complementarity can account for the cyclical behavior of the skill premium and much of its volatility. The model without capital-skill complementarity cannot. These results, together with the available empirical evidence, suggest that capital-skill complementarity is an important determinant of wage inequality over the business cycle. (Copyright: Elsevier)
  • capital-skills complementarity, inequality, relative wages, skill premium
  • RePEc:red:issued:v:7:y:2004:i:3:p:519-540
Language
  • English
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