DP8410 Skill-Biased Technological Change and the Business Cycle

Author(s): Almut Balleer, Thijs van Rens
Publication Date: June 2011
Keyword(s): business cycle, capital-skill complementarity, long-run restrictions, skill premium, skill-biased technology, VAR
JEL(s): E24, E32, J24, J31
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8410

Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? We construct a quarterly skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long-run restrictions. Hours fall in response to skill-biased technology shocks, indicating that at least part of the technology-induced fall in total hours is due to a compositional shift in labor demand. Skill-biased technology shocks have no effect on the relative price of investment, suggesting that capital and skill are not complementary in aggregate production.