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Why Have Aggregate Skilled Hours Become so Cyclical since the Mid-1980’s?


  • CASTRO, Rui
  • COEN-PIRANI, Daniele


ours 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.

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  • CASTRO, Rui & COEN-PIRANI, Daniele, 2005. "Why Have Aggregate Skilled Hours Become so Cyclical since the Mid-1980’s?," Cahiers de recherche 24-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:24-2005

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    Cited by:

    1. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2017. "Wealth inequality and externalities from ex ante skill heterogeneity," Working Papers 2017_07, Business School - Economics, University of Glasgow.
    2. Konstantinos Angelopoulos & Stylianos Asimakopoulos & James Malley, "undated". "The optimal distribution of the tax burden over the business cycle," Discussion Papers 2014/17, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    3. Fatih Guvenen & Serdar Ozkan & Jae Song, 2014. "The Nature of Countercyclical Income Risk," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 621-660.
    4. Chandranath Amarasekara & George J. Bratsiotis, 2012. "Monetary policy and real wage cyclicality," Applied Economics, Taylor & Francis Journals, vol. 44(33), pages 4391-4408, November.
    5. Artuç, Erhan & Pourpourides, Panayiotis M., 2014. "R&D and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 54-71.
    6. Christopher L. Foote & Richard W. Ryan, 2015. "Labor-Market Polarization over the Business Cycle," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 371-413.
    7. María Cervini-Plá & Antonia López-Villavicencio & José Ignacio Silva, 2015. "The heterogeneous cyclicality of income and wages among the distribution," Working Papers halshs-01133823, HAL.
    8. Nir Jaimovich & Seth Pruitt & Henry E. Siu, 2009. "The demand for youth: implications for the hours volatility puzzle," International Finance Discussion Papers 964, Board of Governors of the Federal Reserve System (U.S.).
    9. Konstantinos Angelopoulos & Spyridon Lazarakis & Jim Malley, 2017. "Wealth Inequality and Externalities from Ex Ante Skill Heterogeneity," CESifo Working Paper Series 6572, CESifo Group Munich.
    10. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James, 2015. "Fiscal multipliers in a two-sector search and matching model," SIRE Discussion Papers 2015-67, Scottish Institute for Research in Economics (SIRE).
    11. Julien Champagne & André Kurmann, 2010. "The Great Increase in Relative Volatility of Real Wages in the United States," Cahiers de recherche 1010, CIRPEE.
    12. Fatih Guvenen, 2015. "Comment," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 425-441.
    13. Marcus Hagedorn & Iourii Manovskii & Sergiy Stetsenko, 2016. "Taxation and Unemployment in Models with Heterogeneous Workers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 161-189, January.
    14. 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.
    15. Jonathan A. Parker & Annette Vissing-Jorgensen, 2010. "The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 1-70.
    16. Konstantinos Angelopoulos & Wei Jiang & James Malley, 2017. "Targeted fiscal policy to increase employment and wages of unskilled workers," Studies in Economics 1704, School of Economics, University of Kent.
    17. Shim, Myungkyu & Yang, Hee-Seung, 2015. "The implications of changes in hours fluctuations on welfare costs of business cycles," Economics Letters, Elsevier, vol. 128(C), pages 75-78.
    18. Jongsuk Han, 2013. "Cyclical Employment and Learning Ability," 2013 Meeting Papers 1022, Society for Economic Dynamics.
    19. Mennuni, Alessandro, 2013. "Labor Force Composition and Aggregate Fluctuations," Discussion Paper Series In Economics And Econometrics 1302, Economics Division, School of Social Sciences, University of Southampton.
    20. Fatih Guvenen, 2014. "Comment on "Labor Market Polarization over the Business Cycle"," NBER Chapters,in: NBER Macroeconomics Annual 2014, Volume 29, pages 425-441 National Bureau of Economic Research, Inc.
    21. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers 005, University of Notre Dame, Department of Economics, revised Jun 2012.
    22. Shim, Myungkyu & Yang, Hee-Seung, 2016. "New stylized facts on occupational employment and their implications: Evidence from consistent employment data," Economic Modelling, Elsevier, vol. 59(C), pages 402-415.
    23. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
    24. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James, 2015. "Fiscal multipliers in a two-sector search and matching model," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-67, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item


    macroeconomics; business cycles; volatility; skilled hours; skill premium; capital-skill complementarity;

    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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