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Capital-Skill Complementarity and Rigid Relative Wages: Inference from the Business Cycle

  • Jan R Skaksen and Anders Sorensen
Published/Copyright: June 28, 2005
Topics in Macroeconomics
From the journal Topics in Macroeconomics Volume 5 Issue 1

Abstract

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
Published Online: 2005-06-28

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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https://doi.org/10.2202/1534-6005.1145
Keywords for this article
capital-skill complementarity; relative wages; business cycle

Articles in the same Issue

  1. Advances Article
  2. Comparing Wealth Effects: The Stock Market versus the Housing Market
  3. Optimal Time-Consistent Taxation with International Mobility Of Capital
  4. The Great Inflation of the Seventies: What Really Happened?
  5. Contributions Article
  6. The Effects of Industrialization on Education and Youth Labor in Indonesia
  7. A Closed Form Ramsey Saddle Path
  8. Indeterminacy, Stabilization Policy and Returns to Scale: A Re-Investigation
  9. Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy
  10. The Effects of Reducing Firing Costs in Spain: A Lost Opportunity?
  11. The Buffer-Stock Consumption Model with Endogenous Income Shifts
  12. Capital-Skill Complementarity and Rigid Relative Wages: Inference from the Business Cycle
  13. Indeterminacy and the Stability Puzzle in Non-Convex Economies
  14. The Underestimated Virtues of the Two-sector AK Model
  15. How Well Does the New Keynesian Sticky-Price Model Fit the Data?
  16. Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for the EMU
  17. Changing Technology Trends, Transition Dynamics, and Growth Accounting
  18. The 3-Equation New Keynesian Model --- A Graphical Exposition
  19. Topics Article
  20. Transparency and Reputation: The Publication of Central Bank Forecasts
  21. Technology Adoption in Follower Countries: With or Without Local R&D Activities?
  22. Non-Scale Models of R&D-based Growth: The Market Solution
  23. Parameter Instability, Model Uncertainty and the Choice of Monetary Policy
  24. Job Insecurity, Reallocation and Technological Innovation in a Self-Fulfilling Prophecy
  25. The Scope of Monetary Policy Actions Authorized Under the Federal Reserve Act
  26. Roads versus Schooling: Growth Effects of Government Choices
  27. Matching Up the Data on Education with Economic Growth Models
  28. An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000
  29. Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?
  30. U.S. Regional Income and Technology: A Unit-Root and Cointegration Study
  31. Firm Entry with an Imperfect Labor Market
  32. Fiscal Policy and the Price Level
  33. Income Taxation, Productive Government Expenditure and Stochastic Growth: On Conditions for an Optimal Policy and the Role of the Risk Premium
  34. Income and Wealth Distributions Along the Business Cycle: Implications from the Neoclassical Growth Model
  35. Ramsey-Friedman Optimality with Banking Time
  36. Optimal Fiscal Policy with Rationing in the Labor Market
  37. The Monetary Policy Committee's Reaction Function: An Exercise in Estimation
  38. Policy Effects in the Post Boom U.S. Economy
  39. Human Capital and Growth: An Alternative Accounting
  40. Growing Old Together: Firm Survival and Employee Turnover
  41. Vertical Diversity, Communication Gap and Equilibrium Growth
  42. Should Developing Countries Strengthen their Intellectual Property Rights?
  43. Capital Accumulation in Private Information Economies
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