Review of Economics and Statistics
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People and Machines: A Look at the Evolving Relationship Between Capital and Skills 1860-1930 Using Immigration Shocks
This paper estimates the elasticity of substitution between capital and skill in manufacturing using immigration-induced variation in skill-mix across U.S. counties between 1860 and 1930. We find that capital initially complemented both high- and low-skill labor (determined by literacy), and, unlike today, was more complementary with low-skill labor. Around 1890 capital increased its relative complementarity with high-skill labor. Simulations calibrated to our estimates imply the level of capital-skill complementarity after 1890 allowed the manufacturing sector to absorb the large wave of eastern and southern European immigrants with only a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.
Publicado en: Review of Economics and Statistics