The relation between skill levels and the cyclical variability of employment, hours and wages
AbstractThis paper uses micro data to examine differences in the cyclical variability of employment, hours, and wages for skilled and unskilled workers. Contrary to conventional wisdom, we find that, at the aggregate level, skilled and unskilled workers are subject to essentially the same degree of cyclical variation in wages. That is, relative offer wage differentials between skilled and unskilled workers are acyclical. However, we do find important differences in the patterns of employment and hours variation for skilled vs. unskilled workers when a college degree is used as a proxy for skill. Workers with a college degree have little cyclical variation in employment or weekly hours, while uneducated workers have highly procyclical employment and hours. Thus, we find that the quality of labor input per manhour rises in recessions, thereby inducing a countercyclical bias in aggregate wage measures. We find substantial differences across industries in the cyclical variation of employment, hours, and wage differentials. We interpret these results as indicative of important inter-industry differences in labor contracting.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 41.
Date of creation: 1991
Date of revision:
Other versions of this item:
- Michael P. Keane & Eswar Prasad, 1993. "The Relation Between Skill Levels and the Cyclical Variability of Employment, Hours, and Wages," IMF Working Papers 93/44, International Monetary Fund.
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