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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.

Suggested Citation

  • Rui Castro & Daniele Coen-Pirani, 2008. "WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID-1980s?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 135-185, February.
    • Handle: RePEc:ier:iecrev:v:49:y:2008:i:1:p:135-185
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    References listed on IDEAS

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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