Ratio of wages between 2 types of labor:
∂Q
∂L1
∂Q
∂L2
(1 - a ) bL-1
(1 - b ) L-1)
Γ θθ z1 θτθ ^∣(γ-θ)/θ
• I aK + (1 — a ) L I
∂Q
∂L2
∂Q
∂L3
(1 — b ) cLY-1
(1 — c ) Lβ - 1
l- γθ / θ ^^ι(β—γ )∣ γ
b I aKθ + (1 — a ) L ] + (1 — b ) Lγ2
The effect of a change in capital on the ratio of wages between different types of labor:
(∂Q/ Ï
γ⅝L
∂ Q/
I ∕∂L2 )
∂K
. a ab (1 — a) (KL1)θ-1
( γ — θ)----:
(1 — b ) /
•[aKθ + (1 — a)Lθθ ]
( Y~2θ )/θ
(∂Q/ ^
∕∂L 2
∂ Q/
I ∕dL3 )
∂K
abc(1 — b) Kθ—1LY—1
•[ aKθ + (1 — a )L ] ‘γ-θ * θ □
(β—γγ~C)---Lj—1-
-,γ / θ -|( β —2 Y )/ Y
b I aKθ + (1 — a ) L ] + (1 — b ) Ly2
Ifβ= Y=θ, a change in capital will not affect the ratio of wages between skill types. Thus,
wages across skill will be affected similarly by a change in the corporate tax rate.
Ifβ> Y>θ, a change in capital increases the ratio of wages between L1 and L2 and the ratio
of wages between L2 and L3. If L1 is high-skill labor, L2 is middle-skill labor and L3 is low-
skill labor and the capital-skill complementarity hypothesis holds, a change in capital should
have the largest effect on high-skill labor. Thus, a change in the corporate tax rate is
predicted to have the largest impact on the wages of high-skill workers.
43
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