Capital-Skill Complementarity and Jobless Recovery

Abstract

In this study, we focus on the structural change in production technology and show that the capital-skill complementarity explains the phenomenon of jobless recovery better without any assumption of nominal rigidity. In particular, we show that the job creation for unskilled worker becomes more sluggish as capital-skill complementarity intensifies. The result implies that we did not observe jobless recovery three or four decades ago because the capitalskill complementarity was not strong enough then. Sluggish job creation in recent decades could be due to the facts that skilled labor has become more complementary to capital.