Secular Labor Reallocation and Business Cycles


Chodorow-Reich, Gabriel, and Johannes Wieland. 2018. “Secular Labor Reallocation and Business Cycles”.
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We revisit an old question: does industry labor reallocation affect the business cycle? Our empirical methodology exploits variation in a local labor market's exposure to industry reallocation based on the area's initial industry composition and national industry employment trends for identification. Applied to confidential employment data over 1980-2014, we find sharp evidence of reallocation contributing to higher local area unemployment if it occurs during a national recession, but little difference in outcomes during an expansion. A multi-area, multi-sector search and matching model with imperfect mobility across industries and downward nominal wage rigidity can reproduce these cross-sectional patterns. 


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Last updated on 04/07/2018