Technological Change, Business Cycle and the Wage Structure

Abstract We study how technological change and business cycle shape the wage structure. Controlling for institutional and demographic changes, we examine patterns of skill prices and real wages between 1961-2012. Return to schooling is weakly countercyclical and positively correlated with technological change. Return to experience is countercyclical and negatively correlated with technology. Wages of unskilled inexperienced workers are​ ​positively correlated with technological change and business cycle. To explain these findings, we extend the capital-skill complementarity framework to incorporate schooling, experience, vintage capital equipment and new ​capital equipment. Our model generates the observed profiles of skill prices if vintage-capital-skill complementarity assumptions hold.