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Title:
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Capital-Skill Complementarity and Rigid Relative Wages
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Inference from the Business Cycle |
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Author:
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Rose Skaksen, Jan; Sørensen, Anders |
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Abstract:
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The relative demand for skills has increased considerably in many OECD countries
during recent decades. This development is potentially explained by capital-skill
complementarity and high growth rates of capital equipment. When production
functions are characterized by capital-skill complementarity, relative wages and employment
of skilled labor are countercyclical because capital equipment is a quasi-
fixed factor in the short run. The exact behavior of the two variables depends on
relative wage flexibility. Relative wages are rigid in Denmark, implying that the employment
share of skills should be countercyclical. The labor market is competitive
in the United States and therefore relative wages of skilled labor are expected to be
countercyclical. We find that the business cycle development of the two economies
is consistent with capital-skill complementarity.
Keywords: capital-skill complementarity, relative wages, business cycle |
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URI:
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http://hdl.handle.net/10398/7537
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Date:
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2004-12-09 |
This work is licensed under a Creative Commons License.
