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Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid-1980's?

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  • CASTRO, Rui
  • COEN-PIRANI, Daniele

Abstract

This paper documents and discusses a dramatic change in the cyclical behavior of aggregate hours worked by individuals with a college degree (skilled workers) since the mid-1980’s. Using the CPS outgoing rotation data set for the period 1979:1-2003:4, we find that the volatility of aggregate 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 the extent to which a simple supply/demand model for skilled and unskilled labor with capital-skill complementarity in production can help explain this stylized fact. Within this framework, we identify three effects which would lead to an increase in the relative volatility of skilled hours: (i) a reduction in the degree of capital-skill complementarity, (ii) a reduction in the absolute volatility of GDP (and unskilled hours), and (iii) an increase in the level of capital equipment relative to skilled labor. We provide empirical evidence in support of each of these effects. Our conclusion is that these three mechanisms can jointly explain about sixty percent of the observed increase in the relative volatility of skilled labor. The reduction in the degree of capital-skill complementarity contributes the most to this result.

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Bibliographic Info

Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2005-19.

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Length: 55 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:mtl:montde:2005-19

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Keywords: Macroeconomics; Business Cycles; Volatility; Skilled Hours; Skill Premium; Catal- Skill Comementarity;

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  1. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76.
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Cited by:
  1. 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.
  2. 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.).
  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. 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.
  5. Fatih Guvenen & Serdar Ozkan & Jae Song, 2013. "The nature of countercyclical income risk," Finance and Economics Discussion Series 2013-25, Board of Governors of the Federal Reserve System (U.S.).
  6. 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.
  7. Angelopoulos, Konstantinos & Asimakopoulos, Stylianosulos & Malley, James, 2013. "The Optimal Distribution of the Tax Burden over the Business Cycle," SIRE Discussion Papers 2013-80, Scottish Institute for Research in Economics (SIRE).
  8. Pourpourides, Panayiotis M., 2007. "Implicit Contracts and the Cyclicality of the Skill-Premium," Cardiff Economics Working Papers E2007/19, Cardiff University, Cardiff Business School, Economics Section, revised Apr 2010.

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