Skill-Biased Technological Change and the Business Cycle

Zoomed image of computer's motherboard, courtesy Kevin Steinhardt/flickr

Motherboard of a PC

Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? This paper constructs a quarterly skill premium from the CPS and uses 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. Investment-specific technology shocks reduce the skill premium, indicating that capital and skill are not complementary in aggregate production.

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