Capital Accumulation, Trade Liberalization and Rising Wage Inequality: The Case of Argentina

Capital accumulation can modify the relative productivity between skilled and unskilled workers, leading to changes in the wage structure. In particular, if capital goods are relatively more complementary to skilled workers, a positive correlation between investment in physical capital and the wage premium would be expected. In this paper, we present evidence for this hypothesis by taking advantage of the variability in wage premia and capital investment across industries in the Argentina’s manufacturing sector. We conclude that the wage premium for skilled workers increased more in those industries with higher investment in machinery and equipment. The overall evidence seems to indicate that industry affiliation is an important determinant of earnings differentials by skill group. JEL classification: J31 – F16 – 033