NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Jeanne Lafortune, José Tessada, Ethan Lewis

NBER Working Paper No. 21435
Issued in July 2015
NBER Program(s):   DAE   LS

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.

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Document Object Identifier (DOI): 10.3386/w21435

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