Capital-skill complementarity and wage outcomes following technical change in a global model

Abstract

We estimate the extent of factor bias in technical changes consistent with observed changes in skill premia. To control for the effects of expanded trade on wages we use a structural model with multiple regions and comparative static analysis. Two alternative biased technical-change stories emerge: skill enhancement when capital and skill are substitutes and capital enhancement when capital and skill are complements. These imply different underlying technical-changes processes and macroeconomic behaviour in response to technical-change shocks. Capital enhancement offers the more credible process, however, and is consistent with observed rises in the 'equipment content' of the capital stock.