Skill-Biased Technological Change and the Business Cycle

• Authors: Almut Balleer and Thijs van Rens.
• BSE Working Paper: 560 | September 15
• Keywords: Skill Premium , skill-biased technology , VAR , long-run restrictions , capital-skill complementarity , business cycle
• JEL codes: E24, E32, J24, J31
• Skill Premium
• skill-biased technology
• VAR
• long-run restrictions
• capital-skill complementarity
• business cycle

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.