People and Machines: A Look at the Evolving Relationship between Capital and Skill in Manufacturing 1860-1930 Using Immigration Shocks

95 Pages Posted: 10 Aug 2015 Last revised: 28 Jul 2021

See all articles by Jeanne Lafortune

Jeanne Lafortune

Pontifical Catholic University of Chile - Institute of Economics; IZA

José Tessada

Business School, Pontificia Universidad Católica

Ethan G. Lewis

Dartmouth College - Department of Economics

Date Written: July 2015

Abstract

This paper estimates the elasticity of substitution between capital and skill using variation across U.S. counties in immigration-induced skill mix changes between 1860 and 1930. We find that capital began as a q-complement for skilled and unskilled workers, and then dramatically increased its relative complementary with skilled workers around 1890. Simulations of a parametric production function calibrated to our estimates imply the level of capital-skill complementarity after 1890 likely allowed the U.S. economy to absorb the large wave of less-skilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.

Suggested Citation

Lafortune, Jeanne and Tessada, Jose and Lewis, Ethan G., People and Machines: A Look at the Evolving Relationship between Capital and Skill in Manufacturing 1860-1930 Using Immigration Shocks (July 2015). NBER Working Paper No. w21435, Available at SSRN: https://ssrn.com/abstract=2641651

Jeanne Lafortune

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

IZA ( email )

Jose Tessada (Contact Author)

Business School, Pontificia Universidad Católica ( email )

Vicuna Mackenna 4860
Santiago
Chile

Ethan G. Lewis

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

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