Changes in Hours Fluctuations since the Mid-1980s: What Happened to Middle-Skilled Workers?

Abstract

We find that changes in hours volatilities since the mid-1980s have been more favorable for middle-skilled workers relative to high-skilled and low-skilled workers. In particular, the relative standard deviation of detrended employment of middle-skilled workers to high-skilled workers has dropped by half. This paper argues that the aggregate labor market that has become less favorable for middle-skilled workers at the low frequency had the opposite effects on them at the business cycle frequency. Using a firm model that matches the long-run trend of (1) the relative demand and (2) the relative wage for middle-skilled workers, we show that this simple model can explain about 40 percent of the changes in the relative employment volatility.