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Sectoral Shifts and Cyclical Unemployment Reconsidered

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  • S. Lael Brainard
  • David M. Cutler

Abstract

This paper develops a new measure of reallocation shocks based on the variance of industry stock market excess returns to assess the contribution of sectoral reallocation to unemployment in the postwar U. S. economy. The Beveridge Curve relationship is used to establish that this series isolates reallocation shocks. Reallocation shocks are found to explain only a moderate share of the fluctuations in aggregate unemployment on average over the period. However, reallocation accounted for a substantial share of increases in unemployment in several episodes, particularly the mid-1970s. Reallocation shocks also account for a larger share of fluctuations in unemployment of longer durations than of shorter durations.

Suggested Citation

  • S. Lael Brainard & David M. Cutler, 1993. "Sectoral Shifts and Cyclical Unemployment Reconsidered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 219-243.
  • Handle: RePEc:oup:qjecon:v:108:y:1993:i:1:p:219-243.
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    File URL: http://hdl.handle.net/10.2307/2118501
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