IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • Rui Castro
  • Daniele Coen-Pirani

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://student-3k.tepper.cmu.edu/gsiadoc/wp/2006-E27.pdf
Download Restriction: no

Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E27.

as
in new window

Length:
Date of creation:
Date of revision:
Handle: RePEc:cmu:gsiawp:383672710
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

Order Information: Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
  2. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
  3. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  4. Audra Bowlus & Haoming Liu & Chris Robinson, 2002. "Business Cycle Models, Aggregation, and Real Wage Cyclicality," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 308-335, Part.
  5. Eswar Prasad, 1996. "Skill Heterogeneity and the Business Cycle," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 910-29, November.
  6. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  7. Finn E. Kydland & Edward C. Prescott, 1993. "Cyclical movements of the labor input and its implicit real wage," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 12-23.
  8. Timothy F. Bresnahan & Manuel Trajtenberg, 1992. "General Purpose Technologies "Engines of Growth?"," NBER Working Papers 4148, National Bureau of Economic Research, Inc.
  9. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  10. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  11. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  12. 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.
  13. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  14. 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.
  15. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, June.
  16. Daniel Rodriguez & Madeline Zavodny, 2003. "Changes in the age and education profile of displaced workers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 498-510, April.
  17. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  18. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557.
  19. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-89, August.
  20. Aghion, Philippe & Howitt, Peter & Violante, Giovanni L, 2002. " General Purpose Technology and Wage Inequality," Journal of Economic Growth, Springer, vol. 7(4), pages 315-45, December.
  21. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  22. Chang, Yongsung, 2000. "Wages, business cycles, and comparative advantage," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 143-171, August.
  23. Aghion, Philippe & Howitt, Peter & Violante†, Giovanni L., 2002. "General Purpose Technology and Wage Inequality," Scholarly Articles 12490369, Harvard University Department of Economics.
  24. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  25. 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.
  26. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Canadian Macro Study Group

When requesting a correction, please mention this item's handle: RePEc:cmu:gsiawp:383672710. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.