Elasticities of Substitution among Capital and Occupations in U.S. Manufacturing

Abstract

Abstract This article presents estimates of the elasticities of substitution among capital and up to 12 sex-occupation categories of labor, as well as each input's elasticity of demand, for 12 U.S. manufacturing industries in 1960. These values are derived from a cross-section production function model using states as observations, estimated with data from the Censuses of Manufacturing and Population. The estimator is a nonlinear iterative Zellner procedure, which produces full-information maximum likelihood estimates in this particular application. The results indicate that aggregation of labor into one or two categories is inconsistent with the data in most industries and that capital-skill complementarity is not universal in U.S. manufacturing.