Capital-Skill Complementarity, Productivity and Wages: Evidence from Plant-Level Data for a Developing Country

Abstract

Different types of labor and capital inputs have varying productive contributions that are dependent on plant characteristics. We estimate such contributions and their underlying determinants, recognizing the interactions among labor and capital components that reflect their substitutability or complementarity, for Turkish manufacturing plants. We distinguish technical and non-technical labor, and structures, machinery and computer capital, as well as the shares of female workers and imported capital in our production function specification. We find capital-skill complementary for both machinery and computers; greater productive contributions and thus wages for skilled labor are associated with more machinery intensity and computer use. The reverse is true for unskilled labor, which is complementary only with capital structures. Our results suggest that synergies among skilled (technical) labor, computers, and machinery capital have productivity- and skilled wage-enhancing effects that could contribute to productivity convergence of developing toward developed countries, even with their differing industry and input composition.

Keywords: capital-skill complementarity, labor and capital composition, plant productivity, wage determinants

JEL Classification: J24, J31, O14