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The Dynamics of Sectoral Labour Adjustment

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Author Info
Stephen Tapp () (Queen's University)

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Abstract

This paper develops an equilibrium search and matching model to jointly study the aggregate, sectoral, and distributional impacts of labour adjustment. The model extends Pissarides (2000) to include multisector production and search and "innovation" from investments that can potentially improve a match's productivity. These extensions deliver two mechanisms for inter-sectoral and intra-sectoral labour reallocation after shocks. First, because workers search simultaneously in multiple sectors, changes in labour market conditions in one sector propagate to impact wages and hiring in the rest of the economy through a reservation wage effect. Second, a positive productivity shock causes firms to invest more resources in innovation. This innovation effect shifts production towards high-skill jobs and amplifies the impact of productivity shocks relative to the baseline model. I show that the model is useful for analyzing labour adjustments caused by a diverse set of factors including: technological change; persistent energy price and exchange rate shocks; and trade liberalization. Finally, because the transition dynamics between steady-states are tractable, the model can be readily applied to the data to study particular labour adjustment episodes.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_1141.pdf
File Format: application/pdf
File Function: First version 2007
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1141.

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Length: 40 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:qed:wpaper:1141

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Related research
Keywords: Sectoral Labour Reallocation Search and Matching Wage Spillovers Transition Dynamics

Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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This page was last updated on 2008-11-13.

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