- Aug. 17, 2017
- Aug. 7, 2017
- Aug. 1, 2017
Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2014 > (Research Paper) Rising Skill Premium?
: The Roles of Capital-Skill Complementarity and Sectoral Shifts in a Two-Sector Economy
October 28, 2014
Click on Full Text [PDF 232KB]
Empirical studies report a marked dispersion in skill-premium changes across economies over the past few decades. Structural models in early studies successfully replicate the increases in skill premiums in many economies, while some other cases with a decline in the skill premium are yet to be explained. To this end, we develop a two-sector (i.e., manufacturing and non-manufacturing) general equilibrium model with skilled and unskilled labor, in which degrees of capital-skill complementarity differ across sectors. Based on the estimated structural parameters, we show that a decline in capital-skill complementarity in the non-manufacturing sector can provide a consistent explanation for the following aspects of the Japanese data at both the aggregate and industry levels: (i) a decline in the skill premium, (ii) widening of the sectoral wage gap due to a rise in manufacturing wages and decline in non-manufacturing wages, and (iii) an increase in the unskilled labor share in the non-manufacturing sector. We interpret that this change reflects compositional effects and uneven technology adoption of firms within non-manufacturing.
E22; E24; J31
Capital-skill Complementarity; Skill Premium; Two-sector DSGE Model; Bayesian Estimation.
We thank Kosuke Aoki, Seisaku Kameda, Michael Krause, Eiji Maeda, Shinichi Nishioka, staff of the Bank of Japan, and conference/seminar participants at the Common Challenges in Asian and Europe, Asian Meeting of Econometrics Society, Computing in Economics and Finance, Econometrics Society Australasian Meeting, and Kyoto University for their helpful comments and suggestions. Views expressed here are those of the authors and do not necessarily reflect those of the Bank of Japan.
Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (firstname.lastname@example.org) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.