This paper compares the cyclical behaviour of the employment, hours and wage rates of skilled, semi-skilled and unskilled labour in British mechanical engineering from 1963 to 1978. Figure 1 shows the variation of the employment share of skilled and non-manual male labour in relation to the cyclical fluctuations during the same period, where the cycle measure employed is the percentage deviation of output from its trend value. A casual inspection reveals that the percentage of skilled labour in manual employment reaches peaks in the 1967, 1972 and 1977 recessions, while falling to lows in the 1966, 1969-1970 and 1974 booms. In similar fashion, the percentage of non-manual labour in total employment attains a peak in 1972 and 1977, and falls to a low in 1974-1975. These observations indicate that there is a differential cyclical response of the employment of different types of labour, and suggest that skilled and non-manual employment fluctuate relatively less. The fixity and heterogeneity of labour was first highlighted by Oi (1962) and Becker (1962). The introduction of hiring, firing and training costs, which vary among different groups of workers, implies that the employment behaviour of these groups will differ markedly over the course of the business cycle; i.e. the stock of some groups of labour is relatively in the short run. We will be referring to this as the fixed labour hypothesis. It applies especially to skilled workers because they usually embody more specific on-the-job training than lower skill groups. During short-run cyclical fluctuations we expect that the adjustment in the employment of skilled workers will be slower than that of lower skill groups; and if one identifies non-manual labour with relatively higher skill than manual labour, the same employment behaviour will be expected for non-manual labour. The examination of the relative employment variation of skilled labour is useful in the discussion of the aggregate employment function, for which research has led to the empirical finding of short-run increasing returns to labour. The explanation usually given to this is that there are short-run adjustment costs, which prevent the firm from adjusting the employment of skilled and non-manual labour instantaneously, with respect to cyclical demand shifts. However, excluding the work of Rosen (1968), there has not been any direct empirical testing of such a hypothesis.' Another implication of the fixed labour hypothesis concerns the short-run behaviour of the hours of work of skilled labour. As the most substantial
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