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WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID-1980s?

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  • Rui Castro
  • Daniele Coen-Pirani

Abstract

We document and discuss a dramatic change in the cyclical behavior of aggregate skilled hours since the mid-1980s. Using CPS data for 1979:1-2003:4, we find that the volatility of skilled hours relative to the volatility of GDP has nearly tripled since 1984. In contrast, the cyclical properties of unskilled hours have remained essentially unchanged. We evaluate whether a simple supply/demand model for skilled and unskilled labor with capital-skill complementarity in production can help explain this stylized fact. Our model accounts for about 60% of the observed increase in the relative volatility of skilled labor. Copyright 2008 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 49 (2008)
Issue (Month): 1 (02)
Pages: 135-185

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Handle: RePEc:ier:iecrev:v:49:y:2008:i:1:p:135-185

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  1. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
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Cited by:
  1. Christopher L. Foote & Richard W. Ryan, 2012. "Labor-market polarization over the business cycle," Public Policy Discussion Paper 12-8, Federal Reserve Bank of Boston.
  2. Chandarath Amarasekara & George Bratsiotis, 2009. "Monetary Policy and Real Wage Cyclicality," Centre for Growth and Business Cycle Research Discussion Paper Series 122, Economics, The Univeristy of Manchester.
  3. Jonathan A. Parker & Annette Vissing-Jorgensen, 2010. "The Increase in Income Cyclicality of High-Income Households and its Relation to the Rise in Top Income Shares," NBER Working Papers 16577, National Bureau of Economic Research, Inc.
  4. Konstantinos Angelopoulos & Stylianos Asimakopoulos & Jim Malley, 2013. "The Optimal Distribution of the Tax Burden over the Business Cycle," CESifo Working Paper Series 4468, CESifo Group Munich.
  5. Andre Kurmann & Julien Champagne, 2010. "The Great Increase in Relative Volatility of Real Wages in the United States," 2010 Meeting Papers 674, Society for Economic Dynamics.
  6. Fatih Guvenen & Serdar Ozkan & Jae Song, 2012. "The nature of countercyclical income risk," Staff Report 476, Federal Reserve Bank of Minneapolis.
  7. Nir Jaimovich & Seth Pruitt & Henry E. Siu, 2009. "The demand for youth: implications for the hours volatility puzzle," International Finance Discussion Papers 964, Board of Governors of the Federal Reserve System (U.S.).
  8. Pourpourides, Panayiotis M., 2011. "Implicit contracts and the cyclicality of the skill-premium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 963-979, June.
  9. Jongsuk Han, 2013. "Cyclical Employment and Learning Ability," 2013 Meeting Papers 1022, Society for Economic Dynamics.
  10. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.

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