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Cyclical Skill-Biased Technological Change

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Author Info

  • Thijs van Rens

    (CREI and Universitat Pompeu Fabra)

  • Almut Balleer

    (University of Bonn)

Abstract

Over the past two decades, technological progress has been biased towards making skilled labor more productive. The evidence for this finding is based on the persistent increase in the skill premium, parallel to an upward trend in the supply of skilled workers. What are the cyclical implications of skill-biased improvements in technology? To answer this question, we use the CPS outgoing rotation groups to construct quarterly series for the skill premium and the relative employment of skilled labor. The unconditional correlation of the skill premium with the cycle is zero. However, using a structural VAR with long run restrictions, we find that technology shocks substantially increase the price of skill. However, contrary to the conventional wisdom of capital-skill complementarity, we find that this effect is not driven by investment-specific shocks. Our results also suggest that total employment decreases only in response to skill-biased technology shocks, which we identify using a combination of short run and long run restrictions, and not in response to neutral technology shocks.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 62.

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Date of creation: 2007
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Handle: RePEc:red:sed007:62

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References

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  1. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago.
  2. Coen Teuling & Thijs van Rens, 2001. "Education, growth and income inequality," Economics Working Papers 942, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2006.
  3. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  4. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  5. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2008. "Are Structural VARs with Long-Run Restrictions Useful in Developing Business Cycle Theory?," NBER Working Papers 14430, National Bureau of Economic Research, Inc.
  7. Matthew J. Lindquist, 2004. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 519-540, July.
  8. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," Harvard Institute of Economic Research Working Papers 2096, Harvard - Institute of Economic Research.
  9. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  10. 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.
  11. Jordi Galí & Pau Rabanal, 2005. "Technology Shocks and Aggregate Fluctuations: How Well Does the Real Business Cycle Model Fit Postwar U.S. Data?," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 225-318 National Bureau of Economic Research, Inc.
  12. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
  13. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  14. Galí, Jordi, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," CEPR Discussion Papers 1499, C.E.P.R. Discussion Papers.
  15. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
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Cited by:
  1. Cantore, C. & Ferroni, F. & León-Ledesma, M A., 2011. "Interpreting the Hours-Technology time-varying relationship," Working papers 351, Banque de France.
  2. Balleer, Almut & Enders, Zeno, 2013. "Expansionary and Contractionary Technology Improvements," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80046, Verein für Socialpolitik / German Economic Association.
  3. Cristiano Cantore & Filippo Ferroni & Miguel A. León-Ledesma, 2012. "The dynamics of hours worked and technology," Banco de Espa�a Working Papers 1238, Banco de Espa�a.
  4. Almut Balleer, 2009. "New Evidence, Old Puzzles: Technology Shocks and Labor Market Dynamics," Kiel Working Papers 1500, Kiel Institute for the World Economy.
  5. Zeno Enders & Almut Balleer, 2012. "Expansionary and Contractionary Technology Shocks," 2012 Meeting Papers 812, Society for Economic Dynamics.
  6. Sparber, Chad, 2011. "Unemployment, Skills, and the Business Cycle Since 2000," Working Papers 2011-04, Department of Economics, Colgate University.

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