The Relation Between Skill Levels and the Cyclical Variability of Employment, Hours, and Wages


Michael P. Keane ; Eswar S Prasad

Publication Date:

May 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate


This paper uses micro panel data to examine differences in the cyclical variability of employment, hours, and real wages for skilled and unskilled workers. Contrary to conventional wisdom, we find that, at the aggregate level, skilled and unskilled workers are subject to essentially the same degree of cyclical variation in wages. However, important differences emerge in the patterns of employment and hours variation for skilled versus unskilled workers, especially when a college degree is used as a proxy for skills. We find that the quality of labor input per manhour tends to rise in recessions, thereby inducing a countercyclical bias in aggregate measures of the real wage. We also find substantial differences across industries in the cyclical variation of employment, hours, and wage differentials, which we interpret as indicative of important inter-industry differences in labor contracting.


Working Paper No. 1993/044



Also published in Staff Papers, Vol. 40, No. 4, December 1993.


Publication Date:

May 1, 1993



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