Resource title

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

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The relative demand for skills has increased considerably in many OECD countriesduring recent decades. This development is potentially explained by capital-skillcomplementarity and high growth rates of capital equipment. When productionfunctions are characterized by capital-skill complementarity, relative wages and employmentof skilled labor are countercyclical because capital equipment is a quasi-fixed factor in the short run. The exact behavior of the two variables depends onrelative wage flexibility. Relative wages are rigid in Denmark, implying that the employmentshare of skills should be countercyclical. The labor market is competitivein the United States and therefore relative wages of skilled labor are expected to becountercyclical. We find that the business cycle development of the two economiesis consistent with capital-skill complementarity.Keywords: capital-skill complementarity, relative wages, business cycle

Resource author

Jan Rose Skaksen, Anders Sørensen

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Resource language

eng

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application/pdf

Resource resource URL

http://hdl.handle.net/10398/7537

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