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

96 Pages Posted: 4 Sep 2015

See all articles by Jeanne Lafortune

Jeanne Lafortune

University of Maryland - College Park

José Tessada

Business School, Pontificia Universidad Católica

Ethan G. Lewis

Dartmouth College - Department of Economics

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.

Keywords: immigration, capital-skill complementarity, skill-biased technical change, manufacturing, Second Industrial Revolution

JEL Classification: J24, N61, O33

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. IZA Discussion Paper No. 9217. Available at SSRN: https://ssrn.com/abstract=2655238

Jeanne Lafortune (Contact Author)

University of Maryland - College Park ( email )

College Park, MD 20742
United States

Jose Tessada

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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