WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID‐1980s?* |
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| Authors: | Rui Castro Daniele Coen‐Pirani |
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| Institution: | 1. Université de Montréal, Canada;2. Carnegie Mellon University, U.S.A.;3. We thank Paul Beaudry, Jenny Hunt, Per Krusell, José‐Victor Ríos‐Rull, Scott Schuh, Fallaw Sowell, and Gianluca Violante for helpful conversations and comments, as well as seminar attendants at Universidad de Alicante, Texas A&M, Rice University, Dallas Fed, University of Pennsylvania, University of Texas at Austin, Carnegie Mellon (lunch seminar), New York University, Université Laval, 2005 Midwest Macro Meetings in Iowa City, 2004 Canadian Macro Study Group in Montréal, 2004 CEA Meeting in Toronto, 2003 Rochester Wegmans conference, and 2003 SED Meeting in Paris for helpful suggestions on earlier drafts of this paper. Thanks to Gianluca Violante for providing us with the data for capital equipment. We thank Timothée Picarello and Maria Julia Bocco for excellent research assistance. Financial support from the W.E. Upjohn Institute for Employment Research is gratefully acknowledged. Castro acknowledges financial support from the SSHRC (Canada). The usual disclaimer applies. Please address correspondence to: Rui Castro, Department of Economics, Université de Montréal, C.P. 6128, Succ. Centre‐Ville, Montréal, Québec, H3C 3J7, Canada. Phone: (514) 343‐6760. Fax (514) 343‐7221. Email: . |
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| Abstract: | We document and discuss a dramatic change in the cyclical behavior of aggregate skilled hours since the mid‐1980s. Using CPS data for 1979:1–2003:4, we find that the volatility of 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 whether a simple supply/demand model for skilled and unskilled labor with capital‐skill complementarity in production can help explain this stylized fact. Our model accounts for about 60% of the observed increase in the relative volatility of skilled labor. |
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