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Skill Levels and the Cyclical Variability of Employment, Hours, and Wages

Author

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  • Michael Keane

    (International Monetary Fund)

  • Eswar Prasad

    (International Monetary Fund)

Abstract

This paper uses microeconomic panel data to examine differences in the cyclical variability of employment, hours, and real wages for skilled and unskilled workers. Contrary to conventional wisdom, it finds that, at the aggregate level, skilled and unskilled workers are subject to the same degree of cyclical variation in wages. However, the quality of labor input is found to rise in recessions, inducing a countercyclical bias in aggregate measures of the real wage. The paper also finds substantial differences across industries in the cyclical variation of employment, hours, and wage differentials, indicating important interindustry differences in labor contracting.

Suggested Citation

  • 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.
  • Handle: RePEc:pal:imfstp:v:40:y:1993:i:4:p:711-743
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Almut Balleer & Thijs van Rens, 2013. "Skill-Biased Technological Change and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1222-1237, October.
    2. Kula Ferit & Aslan Alper, 2010. "Hysteresis vs. Natural Rate of Unemployment: One, the Other, or Both?," South East European Journal of Economics and Business, De Gruyter Open, vol. 5(1), pages 91-94, April.
    3. Carlén, Björn, 2002. "Exclusionary Manipulation of Carbon Permit Markets: A Laboratory Test," Research Papers in Economics 2002:15, Stockholm University, Department of Economics.
    4. Ferit KULA & Alper ASLAN, 2014. "Unemployment Hysteresis in Turkey: Does Education Matter?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(1), pages 35-39.
    5. Mukoyama, Toshihiko & Sahin, Aysegul, 2006. "Costs of business cycles for unskilled workers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2179-2193, November.
    6. Judith M. Delaney & Paul J. Devereux, 2017. "More Education, Less Volatility? The Effect of Education on Earnings Volatility over the Life Cycle," Working Papers 201723, School of Economics, University College Dublin.
    7. Martin HUMBURG & Andries de GRIP & Rolf van der VELDEN, 2017. "Which skills protect graduates against a slack labour market?," International Labour Review, International Labour Organization, pages 25-43.
    8. Otrok, Christopher & Pourpourides, Panayiotis M., 2008. "On The Cyclicality of Real Wages and Wage Differentials," Cardiff Economics Working Papers E2008/19, Cardiff University, Cardiff Business School, Economics Section, revised Mar 2009.
    9. Manuel A. Hidalgo, 2008. "Wage Inequality in Spain, 1980-2000," Working Papers 08.08, Universidad Pablo de Olavide, Department of Economics.
    10. Pourpourides, Panayiotis M., 2011. "Implicit contracts and the cyclicality of the skill-premium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 963-979, June.
    11. Devereux, Paul J, 2000. "Task Assignment over the Business Cycle," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 98-124, January.
    12. Chang, Yongsung, 2000. "Wages, business cycles, and comparative advantage," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 143-171, August.
    13. Linda Goldberg & Joseph Tracy, 2001. "Exchange Rates and Wages," NBER Working Papers 8137, National Bureau of Economic Research, Inc.
    14. 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.
    15. D. Lederman & W.F. Maloney & J. Messina, 2011. "The Fall of Wage Flexibility," World Bank Other Operational Studies 23575, The World Bank.
    16. Toshihiko Mukoyama & Aysegül Sahin, 2005. "The cost of business cycles for unskilled workers," Staff Reports 214, Federal Reserve Bank of New York.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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