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

Rui Castro and Daniele Coen-Pirani

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: 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.

Keywords: Macroeconomics; Business Cycles; Volatility; Skilled Hours; Skill Premium; Catal- Skill Comementarity (search for similar items in EconPapers)
JEL-codes: E24 E32 J24 J31 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2005
New Economics Papers: this item is included in nep-bec, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://hdl.handle.net/1866/548 (application/pdf)

Related works:
Journal Article: WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID-1980s? (2008)
Working Paper: Why Have Aggregate Skilled Hours Become so Cyclical since the Mid-1980’s? (2005)
Working Paper: Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid 1980s?
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2005-19

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