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The Relation Between Skill Levels and the Cyclical Variability of Employment, Hours, and Wages

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  • Michael P. Keane
  • Eswar S Prasad

Abstract

This paper uses micro panel data to examine differences in the cyclical variability of employment, hours, and real wages for skilled and unskilled workers. Contrary to conventional wisdom, we find that, at the aggregate level, skilled and unskilled workers are subject to essentially the same degree of cyclical variation in wages. However, important differences emerge in the patterns of employment and hours variation for skilled versus unskilled workers, especially when a college degree is used as a proxy for skills. We find that the quality of labor input per manhour tends to rise in recessions, thereby inducing a countercyclical bias in aggregate measures of the real wage. We also find substantial differences across industries in the cyclical variation of employment, hours, and wage differentials, which we interpret as indicative of important inter-industry differences in labor contracting.

Suggested Citation

  • Michael P. Keane & Eswar S Prasad, 1993. "The Relation Between Skill Levels and the Cyclical Variability of Employment, Hours, and Wages," IMF Working Papers 93/44, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:93/44
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    References listed on IDEAS

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    1. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
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    Cited by:

    1. Mukoyama, Toshihiko & Sahin, Aysegul, 2006. "Costs of business cycles for unskilled workers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2179-2193, November.
    2. 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.
    3. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    4. Stuart Glosser & Lonnie Golden, 2005. "Is labour becoming more or less flexible? Changing dynamic behaviour and asymmetries of labour input in US manufacturing," Cambridge Journal of Economics, Oxford University Press, vol. 29(4), pages 535-557, July.
    5. Thijs van Rens & Almut Balleer, 2007. "Cyclical Skill-Biased Technological Change," 2007 Meeting Papers 62, Society for Economic Dynamics.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Magda Kandil & Jeffrey Woods, 2002. "Employment composition and the cyclical behaviour of the aggregate real wage," Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 689-708.
    11. repec:eee:econom:v:203:y:2018:i:2:p:283-296 is not listed on IDEAS
    12. Linda Goldberg & Joseph Tracy, 2001. "Exchange Rates and Wages," NBER Working Papers 8137, National Bureau of Economic Research, Inc.
    13. D. Lederman & W.F. Maloney & J. Messina, 2011. "The Fall of Wage Flexibility," World Bank Other Operational Studies 23575, The World Bank.

    More about this item

    Keywords

    Wages; wage; employment; worker; unemployment;

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