Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154233
Authors: 
McAdam, Peter
Willman, Alpo
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1800
Abstract: 
For the US the supply and wages of skilled labor relative to those of unskilled labor have grown over the postwar period. The literature has tended to explain this through “skill-biased technical change”. Empirical work has concentrated around two variants: (1) Capital-skill complementarity, and (2) Skill-augmenting technical change. Our purpose is to nest and discriminate between these two explanations. We do so in the framework of 2- and 3-level CES production function where factors are disaggregated into skilled and unskilled labor, and the capital stock into structures and equipment capital. Using a 5-equation system approach and several nesting alternatives, we retrieve estimates of the elasticities of substitution and factor augmenting technical changes. Our estimations are able to produce results in line with capital skill- complementarity hypothesis. However, those results are outperformed results where the only source of the widening skill-premium has been skill augmenting technical change. We also show that the different explanations for SBTC have very different implications for future projected developments of the skill premium.
Subjects: 
Capital-Skill Complementarity
Factor Substitution
Factor- Augmenting Technical Progress
Inequality
Multi-level CES production function
Projections
Skill Premium
JEL: 
J01
J31
O4
ISBN: 
978-92-899-1613-4
Document Type: 
Working Paper

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