WHY HAVE AGGREGATE SKILLED HOURS BECOME SO CYCLICAL SINCE THE MID‐1980s?*

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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