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Aggregation, the Skill Premium and the Two-Level Production Function

McAdam, Peter, León-Ledesma, M and Willman, A (2012) Aggregation, the Skill Premium and the Two-Level Production Function Frontiers of Economics and Globalization, Volume . Emerald. ISBN 978-1-78052-396-5

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We examine the two-level nested Constant Elasticity of Substitution production function where both capital and labor are disaggregated in two classes. We propose a normalized system estimation method to retrieve estimates of the inter- and intra-class elasticities of substitution and factor augmenting technical progress coefficients. The system is estimated for US data for the 1963-2006 period. Our findings reveal that skilled and unskilled labor classes are gross substitutes, capital structures and equipment are gross complements, and aggregate capital and aggregate labor are gross complements with an elasticity of substitution close to 0.5. We discuss the implications of our findings and methodology for the analysis of the causes of the increase in the skill premium and, by implication, inequality in a growing economy.

Item Type: Book
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
León-Ledesma, M
Willman, A
Date : 1 January 2012
Copyright Disclaimer : Copyright 2012 Emerald Publishing Group
Uncontrolled Keywords : Two-level CES production function, factor-augmenting technical progress, factor substitution, aggregation, skill-premium
Depositing User : Symplectic Elements
Date Deposited : 28 Mar 2017 15:26
Last Modified : 16 Jan 2019 16:35

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