Title: The long-run dynamics of capital-skill complementarity
Authors: Gerrit Meyerheim - LMU Munich (Germany)
Peter Pedroni - Williams College (United States)
Uwe Sunde - LMU Munich (Germany) [presenting]
Abstract: The question about the relative complementarity of capital and skills is addressed. While there is an emerging consensus that physical capital and skills are relative complements in advanced economies, economic historians have argued that, at least during the early stages of the industrial revolution, capital and unskilled labor have been relatively more complementary than capital and skilled labor. Relatively little is known empirically about the complementarity of capital and skills in developing countries and over the long-run. One reason is the lack of an appropriate empirical methodology with which the relationship can be estimated robustly while being sufficiently flexible to be able to account for changes in this relationship and identify potential determinants. We investigate the relationship from the perspective of a model of long-run growth and employ a novel econometric methodology that can be used to estimate the relationship between income and capital inputs depending on the available skill composition of the labor force. The methodology also allows us to isolate changes in this relationship for different levels of capital and skills and to provide estimates of non-functional relationships between different variables.