Revisiting Capital-Skill Complementarity, Inequality, and Labor Share

Lee Ohanian, Musa Orak and Shihan Shen

No 28747, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Rios-Rull and Violante (KORV, 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in labor’s share of income that were not present in KORV. We study both labor share of gross income (as in KORV), and income net of depreciation. We also use non-farm business sector output as an alternative measure of production to real GDP. We find strong evidence for continued capital-skill complementarity in the most recent data, and that the model continues to closely account for the skill premium. The model captures the average level of labor share, though it overpredicts its level by 2-4 percentage points at the end of the period.

JEL-codes: E13 E25 J23 J3 J68 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
Note: EFG LS
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Citations: View citations in EconPapers (9)

Published as Lee Ohanian & Musa Orak & Shihan Shen, 2023. "Revisiting Capital-Skill Complementarity, Inequality, and Labor Share," Review of Economic Dynamics, .

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Journal Article: Revisiting Capital-Skill Complementarity, Inequality, and Labor Share (2023)
Working Paper: Revisiting Capital-Skill Complementarity, Inequality, and Labor Share (2021)
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