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Capital-skill complementarity and inequality: Twenty years after

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  • Maliar, Lilia
  • Maliar, Serguei
  • Tsener, Inna
Abstract
We revisit a seminal capital-skill complementarity analysis of Krusell et al. (2000). We extended their 1963–1992 data set to include the 1992–2017 period. We find that over the recent years, the skill premium pattern changed dramatically, from a U-shaped to a monotonically increasing. However, the capital-skill complementarity framework remains remarkably successful in explaining the data. This is true even when the model is estimated using a significantly declining labor share as in Karabarbounis and Neiman (2014). We finally construct a projection for skill premium for 2017–2037, and we conclude that the inequality will continue to grow in the US economy.

Suggested Citation

  • Maliar, Lilia & Maliar, Serguei & Tsener, Inna, 2022. "Capital-skill complementarity and inequality: Twenty years after," Economics Letters, Elsevier, vol. 220(C).
    • Handle: RePEc:eee:ecolet:v:220:y:2022:i:c:s0165176522003184
    DOI: 10.1016/j.econlet.2022.110844
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    1. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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    Cited by:

    1. Castex, Gonzalo & (Stanley) Cho, Sang-Wook & Dechter, Evgenia, 2022. "The decline in capital-skill complementarity," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    2. Stelios Sakkas & Petros Varthalitis, 2021. "Public Debt Consolidation and its Distributional Effects," Manchester School, University of Manchester, vol. 89(S1), pages 131-174, September.
    3. Chu, Yihe & Li, Yujia & Che, Ming, 2024. "Population aging and the dynamics of the skill income gap: An analysis of a multiple mediation effect," Finance Research Letters, Elsevier, vol. 62(PB).
    4. Stephen J. Turnovsky & Zinan Wang, 2022. "The Effects of Globalization on Skilled Labor, Unskilled Labor, and the Skill Premium," Open Economies Review, Springer, vol. 33(3), pages 407-452, July.
    5. Balza, Lenin H. & De Los Rios, Camilo & Guerra, Alfredo & Herrera-Prada, Luis Omar & Manzano, Osmel, 2023. "Unraveling the network of extractive industries," Resources Policy, Elsevier, vol. 85(PB).
    6. Ozlem Kina & Ctirad Slavik & Hakki Yazici, 2020. "Redistributive Capital Taxation Revisited," CERGE-EI Working Papers wp674, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    7. Lee Ohanian & Musa Orak & Shihan Shen, 2023. "Revisiting Capital-Skill Complementarity, Inequality, and Labor Share," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 479-505, December.
    8. Kirill Borissov & Aleksey Minabutdinov & Roman Popov, 2024. "Ability Distribution and Dynamics of Wage Inequality: Unintended Consequences of Human Capital Accumulation," CER-ETH Economics working paper series 24/393, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Zhang, Dongyang & Wang, Cao & Miao, Shan & Deng, Lei, 2024. "The impact of firm's ESG performance on the skill premium: Evidence from China's green finance reform pilot zone," International Review of Financial Analysis, Elsevier, vol. 93(C).

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    More about this item

    Keywords

    Skill premium; Capital-skill complementarity; CES production function; Skilled and unskilled labor;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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