 Capital-skill complementarity, sectoral labor productivity, and structural transformationJournal of Economic Dynamics and Control, 2020, vol. 116, issue C Abstract: In the postwar U.S. economy, labor productivity has been growing faster in the goods sector versus the service sector. This paper argues that this sectoral labor productivity growth gap can largely be explained by the fact that capital intensity also increases faster in the goods sector. I build a two-sector neoclassical growth model in which capital substitutes low-skilled labor but complements high-skilled labor, and the goods sector is more intensive in low-skilled labor relative to the service sector, as observed in the data. As capital becomes more abundant relative to labor along economic growth, low-skilled labor is substituted by capital, leading to faster growth of capital intensity and hence labor productivity in the goods sector. Using a calibrated model, I find that two thirds of the sectoral labor productivity growth gap can be explained by capital accumulation and its interaction with capital-skill complementarity. Keywords: Capital intensity; Capital-skill complementarity; Structural transformation; Labor productivity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:116:y:2020:i:c:s0165188920300701 DOI: 10.1016/j.jedc.2020.103902 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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