Why Does Employment in All Major Sectors Move Together over the Business Cycle?
AbstractIn recessions, employment falls in all major sectors. Positive correlation of employment across sectors is a puzzle, because a standard two-sector business-cycle model driven by aggregate productivity shocks predicts negative correlation of total hours of work in the consumption-goods sector and the investment-goods sector. I start from the observation that most of the variability of total hours worked takes the form of variations in the number of workers. Hours per employed worker is only a secondary source of variation. The exten- sive margin is therefore critical in understanding the positive correlation of sectoral labor market variables, yet neglected by existing studies. This paper advances the literature on cross-sectoral correlation of employment by making unemployment an explicit feature of the model. I construct a two sector model with search and matching friction, capital ad- justment costs, and partial wage stickiness. The model explains the positive cross-sectoral correlation through movements of workers in both sectors into and out of unemployment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 677.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-22 (All new papers)
- NEP-BEC-2013-05-22 (Business Economics)
- NEP-DGE-2013-05-22 (Dynamic General Equilibrium)
- NEP-MAC-2013-05-22 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
- Leena Rudanko, 2011.
"Aggregate and Idiosyncratic Risk in a Frictional Labor Market,"
American Economic Review,
American Economic Association, vol. 101(6), pages 2823-43, October.
- Leena Rudanko, 2009. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," 2009 Meeting Papers 468, Society for Economic Dynamics.
- Leena Rudanko, 2008. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," Boston University - Department of Economics - Working Papers Series wp2008-009, Boston University - Department of Economics.
- Leena Rudanko, 2010. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," Boston University - Department of Economics - Working Papers Series WP2010-054, Boston University - Department of Economics.
- Max Floetotto & Nir Jaimovich & Seth Pruitt, 2009. "Markup variation and endogenous fluctuations in the price of investment goods," International Finance Discussion Papers 968, Board of Governors of the Federal Reserve System (U.S.).
- Sergio Rebelo, 2005.
"Real Business Cycle Models: Past, Present, and Future,"
NBER Working Papers
11401, National Bureau of Economic Research, Inc.
- S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
- Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 217-238, 06.
- Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," RCER Working Papers 522, University of Rochester - Center for Economic Research (RCER).
- Rebelo, Sérgio, 2005. "Real Business Cycle Models: Past, Present and Future," CEPR Discussion Papers 5384, C.E.P.R. Discussion Papers.
- Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 899-927, August.
- Jordi Galí & Thijs van Rens, 2008.
"The vanishing procyclicality of labor productivity,"
Economics Working Papers
1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
- Galí, Jordi & van Rens, Thijs, 2010. "The Vanishing Procyclicality of Labor Productivity," IZA Discussion Papers 5099, Institute for the Study of Labor (IZA).
- Jordi Galí & Thijs van Rens, 2014. "The Vanishing Procyclicality of Labor Productivity," Working Papers 489, Barcelona Graduate School of Economics.
- Thijs van Rens & Jordi Gali, 2010. "The Vanishing Procyclicality of Labor Productivity," 2010 Meeting Papers 705, Society for Economic Dynamics.
- Jordi Galí & Thijs van Rens, 2010. "The Vanishing Procyclicality of Labor Productivity," Kiel Working Papers 1641, Kiel Institute for the World Economy.
- Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991.
"Homework in Macroeconomics: Household Production and Aggregate Fluctuations,"
Journal of Political Economy,
University of Chicago Press, vol. 99(6), pages 1166-87, December.
- Jess Benhabib & Richard Rogerson & Randall Wright, 1991. "Homework in macroeconomics: household production and aggregate fluctuations," Staff Report 135, Federal Reserve Bank of Minneapolis.
- Manuel Toledo & Jose I. Silva, 2005.
"Labor Turnover Costs and the Cyclical Behavior of Vacancies and Unemployment,"
2005 Meeting Papers
775, Society for Economic Dynamics.
- Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
- Vázquez Pérez, Jesús & Cassou, Steven P., 2009. "Employment comovements at the sectoral level over the business cycle," DFAEII Working Papers 2009-.06, University of the Basque Country - Department of Foundations of Economic Analysis II.
- Sharon G. Harrison, 2003. "Returns to Scale and Externalities in the Consumption and Investment Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 963-976, October.
- Mortensen, Dale T & Pissarides, Christopher A, 1994.
"Job Creation and Job Destruction in the Theory of Unemployment,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(3), pages 397-415, July.
- Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
- Andreas Hornstein & Jack Praschnik, 1997.
"Intermediate inputs and sectoral comovement in the business cycle,"
97-06, Federal Reserve Bank of Richmond.
- Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December.
- Bjoern Bruegemann & Giuseppe Moscarini, 2010.
"Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 575-596, July.
- Bjoern Bruegemann & Giuseppe Moscarini, 2009. "Code and data files for "Rent Rigidity, Asymmetric Information, and Volatility Bounds in Labor Markets"," Computer Codes 08-208, Review of Economic Dynamics.
- P. Diamond, 1980.
"Aggregate Demand Management in Search Equilibrium,"
268, Massachusetts Institute of Technology (MIT), Department of Economics.
- DiCecio, Riccardo, 2009. "Sticky wages and sectoral labor comovement," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 538-553, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.