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Skill-Biased Technological Change and the Business Cycle

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  • Almut Balleer
  • Thijs van Rens

Abstract

Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? We construct a quarterly skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long-run restrictions. Hours fall in response to skill-biased technology shocks, indicating that at least part of the technology-induced fall in total hours is due to a compositional shift in labor demand. Skill-biased technology shocks have no effect on the relative price of investment, suggesting that capital and skill are not complementary in aggregate production.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 560.

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Date of creation: May 2011
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Handle: RePEc:bge:wpaper:560

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Keywords: skill-biased technology; skill premium; VAR; long-run restrictions; capital-skill complementarity; business cycle;

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  1. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, May.
  2. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  3. Coen Teulings & Thijs van Rens, 2008. "Education, Growth, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 89-104, February.
  4. Fabio Canova & David Lopez-Salido & Claudio Michelacci, 2010. "The effects of technology shocks on hours and output: a robustness analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 755-773.
  5. Lindquist, Matthew J., 2002. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Research Papers in Economics 2002:14, Stockholm University, Department of Economics, revised 01 Sep 2003.
  6. Michael Keane & Eswar Prasad, 1993. "Skill Levels and the Cyclical Variability of Employment, Hours, and Wages," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 711-743, December.
  7. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
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Cited by:
  1. Fatih Guvenen & Serdar Ozkan & Jae Song, 2012. "The nature of countercyclical income risk," Staff Report 476, Federal Reserve Bank of Minneapolis.

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