José Tessada; Ethan Lewis
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 lessskilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.
Keywords: Intertemporal local fiscal behavior, stochastic processes, flypaper effect
JEL: H71, H72, H77