Working Paper

Capital-Skill Complementarity in Manufacturing: Lessons from the US Shale Boom

Abstract: This paper tests the existence of capital-skill complementarity in the manufacturing sector using quasi-experimental increases in the relative price of low-skill labor induced by the US shale boom. I find that in response to the shale boom, local manufacturing firms decreased their relative usage of low-skill labor while increasing their capital expenditures. These endogenous changes in the input mix allowed manufacturers to maintain the value added despite the increase in the price of low-skill labor, avoiding the potential short-term crowding-out effects of the natural resource boom. Combined with the findings of previous work, my results indicate that the degree of skill substitutable with capital in manufacturing has increased over the last several decades.

Keywords: capital-skill complementarity; manufacturing; fracking; natural resources; labor markets;

JEL Classification: E22; E24; O13; J24;

https://doi.org/10.26509/frbc-wp-202412

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2024-05-30

Number: 24-12