Skip to main content
No booking required

11 January 2023 - 11 January 2023

1:30PM - 3:00PM

Durham University Business School Mill Hill Lane Durham DH1 3LB UK

  • 0

Share page:

Skill-Substitutability, Wage Inequality, and Productivity Growth

This is the image alt text

Skill-Substitutability, Wage Inequality, and Productivity Growth

Zafer Kanik

University of Glasgow

Skill-Substitutability, Wage Inequality, and Productivity Growth

We present a model of capital-labor substitution, where capital is produced by higher-skilled labor (i.e., engineers, scientists) and it substitutes for lower-skilled labor in final good production (e.g., assembly line workers, cashiers, clerks). We call this process “skill-substitutability.” An increase in the productivity of capital (e.g., more functional machinery, computer hardware) decreases its relative price; however, the rising share of higher-skilled labor in its production increases its relative price, which counteracts the productivity rise and slows down the capital-labor substitution. Furthermore, dropping wages of substitutable workers (i.e., lower-skilled labor) in the overall economy for other (i.e., non-substitution related) reasons contributes to the slow-down in capital-labor substitution. We calibrate our model by using the US data for 1987-2017 and show that these counteracting forces provide a novel explanation for the relatively stable share of equipment capital in value added.

 

 

Pricing

0