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Explaining Cyclical Movements in Employment: Creative-Destruction or Changes in Utilization?

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Author Info
Andrew Figura
Abstract

An important step in understanding why employment fluctuates cyclically is determining the relative importance of cyclical movements in permanent and temporary plant-level employment changes. If movements in permanent employment changes are important, then recessions are times when the destruction of job specific capital picks up and/or investment in new job capital slows. If movements in temporary employment changes are important, then employment fluctuations are related to the temporary movement of workers across activities (e.g. from work to home production or search and back again) as the relative costs/benefits of these activities change. I estimate that in the manufacturing sector temporary employment changes account for approximately 60 percent of the change in employment growth over the cycle. However, if permanent employment changes create and destroy more capital than temporary employment changes, then their economic consequences would be relatively greater. The correlation between gross permanent employment changes and capital intensity across industries supports the hypothesis that permanent employment changes do create and destroy more capital than temporary employment changes.

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Publisher Info
Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 06-25.

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Length: 34 pages
Date of creation: Nov 2006
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Handle: RePEc:cen:wpaper:06-25

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Web page: http://www.ces.census.gov

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Related research
Keywords: Cyclical Employment Changes Permanent and Temporary Employment Changes

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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