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Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality

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  • Jacob Wong

    ()
    (School of Economics, University of Adelaide)

Abstract

This paper presents a dynamic model of structural unemployment and occupational choice in which an economy is subjected to aggregate reallocation shocks. Reallocation shocks, which change the relative labour productivity across occupations, drive variation in the distribution of workers across occupations. The wage paid to workers in a given occupation depends on its labour productivity and the number of workers employed in that occupation. Workers who wish to switch occupations in order to obtain higher wages face a fixed cost to retrain and, in addition, it is more costly to switch to occupations requiring vastly different skills relative to those of the worker's current occupation. Thus workers may prefer to remain unemployed in occupations su ering through relatively low productivity states. Between the late-1970s and the mid-2000s the U.S. economy featured an episode during which occupational mobility rose along with an increase in wage inequality both in the top and bottom halves of the wage distribution. This was followed by an episode during which occupational mobility fell, while a rise in inequality in the top half of the wage distribution was accompanied by a fall in inequality in the bottom half. The model can produce episodes with properties similar to that of the U.S. experience and thus offers a theory of why these episodes occur.

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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2012-04.

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Length: 51 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:adl:wpaper:2012-04

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Keywords: Occupational Mobility; Wage Inequality;

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  1. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
  2. Carlos Carrillo-Tudela & Ludo Visschers, 2013. "Unemployment and Endogenous Reallocation over the Business Cycle," CESifo Working Paper Series 4079, CESifo Group Munich.
  3. Jose Mustre-del-Rio & William Hawkins, 2012. "Financial Frictions and Occupational Mobility," 2012 Meeting Papers, Society for Economic Dynamics 1123, Society for Economic Dynamics.
  4. Eric Sims & Michael Jason Pries, 2011. "Reallocation and the Changing Nature of Economic Fluctuations," 2011 Meeting Papers 1258, Society for Economic Dynamics.
  5. Maxim Poletaev & Chris Robinson, 2008. "Human Capital Specificity: Evidence from the Dictionary of Occupational Titles and Displaced Worker Surveys, 1984-2000," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 26(3), pages 387-420, 07.
  6. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(6), pages 1143-1157, September.
  7. Kambourov, Gueorgui & Manovskii, Iourii, 2004. "Occupational Mobility and Wage Inequality," IZA Discussion Papers 1189, Institute for the Study of Labor (IZA).
  8. Moscarini, Giuseppe & Thomsson, Kaj, 2006. "Occupational and Job Mobility in the US," Working Papers, Yale University, Department of Economics 19, Yale University, Department of Economics.
  9. Young, Eric R., 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm and non-stochastic simulations," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(1), pages 36-41, January.
  10. Gathmann, Christina & Schönberg, Uta, 2007. "How General Is Human Capital? A Task-Based Approach," IZA Discussion Papers 3067, Institute for the Study of Labor (IZA).
  11. Gouge, Randall & King, Ian, 1997. "A Competitive Theory of Employment Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(1), pages 1-22, January.
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Cited by:
  1. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.

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