Discussion Paper Details

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Title: Skill-Biased Technological Change and the Business Cycle

Author(s): Almut Balleer and Thijs van Rens

Publication Date: June 2011

Keyword(s): business cycle, capital-skill complementarity, long-run restrictions, skill premium, skill-biased technology and VAR

Programme Area(s): International Macroeconomics and Labour Economics

Abstract: 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.

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Bibliographic Reference

Balleer, A and van Rens, T. 2011. 'Skill-Biased Technological Change and the Business Cycle'. London, Centre for Economic Policy Research.