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Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets

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  • Maximiliano Dvorkin

    (Yale University)

Abstract

This paper makes three contributions. First, on the technical side, I adapt and extend numerical techniques to solve a Lucas & Prescott (1974) type of model with a sufficiently large number of islands and aggregate uncertainty. The main difficulty in these models is that the whole distribution of wages and economic conditions over islands is part of the state variables in the worker's decision problem, and with aggregate uncertainty this distribution is not time invariant. Second, I analyze the cyclical properties of island models. Despite the original paper was published almost 40 years ago, little is known about the business cycle properties of this model. Last, I use the model to quantify the importance of sectoral shocks in generating cyclical fluctuations in the labor market and in particular, whether the dynamics of the labor market in the Great Recession are a result of a adverse sectoral shocks or a weak aggregate demand.

Suggested Citation

  • Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:1229
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    2. Carlos Carrillo‐Tudela & Ludo Visschers, 2023. "Unemployment and Endogenous Reallocation Over the Business Cycle," Econometrica, Econometric Society, vol. 91(3), pages 1119-1153, May.
    3. Gabriel Chodorow-Reich & Johannes Wieland, 2020. "Secular Labor Reallocation and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2245-2287.
    4. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
    5. Christian vom Lehn & Thomas Winberry, 2018. "The Changing Nature of Sectoral Comovement," 2018 Meeting Papers 277, Society for Economic Dynamics.
    6. Lorenzo CALIENDO & Maximiliano DVORKIN & Fernando PARRO, 2016. "Trade and Labor Market Dynamics," Discussion papers 16050, Research Institute of Economy, Trade and Industry (RIETI).
    7. Carrillo-Tudela, Carlos & Visschers, Ludo, 2014. "Unemployment and Endogenous Reallocation over the Business Cycle," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-35, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Claudia Macaluso, 2017. "Skill Remoteness and Post-layoff Labor Market Outcomes," 2017 Meeting Papers 569, Society for Economic Dynamics.
    9. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.

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