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Macroeconomic effects of employment reallocation

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  • Campbell, Jeffrey R.
  • Kuttner, Kenneth N.

Abstract

Major shifts in employment between industries and between firms within industries usually accompany recessions. Although this observation suggests that exogenous changes in the optimal allocation of labor are an important source of aggregate employment fluctuations, the macroeconomic significance of such shocks has remained unknown. This paper empirically assesses the role of reallocation shocks for cyclical employment fluctuations, and investigates the relationship between inter- and intrasectoral employment flows. In an analysis of total employment and the share employed in manufacturing, we find that reallocation shocks account for the majority of the variance in employment shares and dispersion, while aggregate shocks' contribution is modest. The two shocks' impact on aggregate employment is sensitive to the identifying assumptions. However, under two of the three methods considered reallocation shocks account for over half of the variance in total employment. Including a measure of reallocation between firms in the manufacturing sector diminishes the effects of the intersectoral reallocation shocks on total and manufacturing employment, largely at the expense of the shocks to intrasectoral allocation. Together, the two reallocation shocks account for roughly half of the variance in total employment growth. We also find that permanent shifts in employment out of manufacturing depress job creation while increasing job destruction; by contrast, increases in employment reallocation between manufacturing establishments are associated with increases in both creation and destruction.
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  • Campbell, Jeffrey R. & Kuttner, Kenneth N., 1996. "Macroeconomic effects of employment reallocation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 87-116, June.
  • Handle: RePEc:eee:crcspp:v:44:y:1996:i::p:87-116
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    Cited by:

    1. Gkiourkas, Emmanouil & Panagiotidis, Theodore & Pelloni, Gianluigi, 2017. "Revisiting the macroeconomic effects of labor reallocation," Economics Letters, Elsevier, vol. 158(C), pages 88-93.
    2. Gianluigi Pelloni & Wolfgang Polasek, "undated". "Intersectoral Labour Reallocation and Employment Volatility: A Bayesian Analysis using a VAR-GARCH-M model," Discussion Papers 99/4, Department of Economics, University of York.
    3. Bruce C. Fallick & Charles A. Fleischman, 2001. "The importance of employer-to-employer flows in the U.S. labor market," Finance and Economics Discussion Series 2001-18, Board of Governors of the Federal Reserve System (US).
    4. Chen, Jinzhu & Kannan, Prakash & Loungani, Prakash & Trehan, Bharat, 2012. "New evidence on cyclical and structural sources of unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-23.
    5. Gianluigi Pelloni & Wolfgang Polasek, 2003. "Macroeconomic Effects of Sectoral Shocks in Germany, The U.K. and, The U.S.: A VAR-GARCH-M Approach," Computational Economics, Springer;Society for Computational Economics, vol. 21(1_2), pages 65-85, February.
    6. Shigeru Fujita, 2004. "Vacancy persistence," Working Papers 04-23, Federal Reserve Bank of Philadelphia.
    7. Panagiotidis, Theodore & Pelloni, Gianluigi, 2007. "Nonlinearity In The Canadian And U.S. Labor Markets: Univariate And Multivariate Evidence From A Battery Of Tests," Macroeconomic Dynamics, Cambridge University Press, vol. 11(05), pages 613-637, November.
    8. Andrew Figura, 2002. "Is reallocation related to the cycle? A look at permanent and temporary job flows," Finance and Economics Discussion Series 2002-16, Board of Governors of the Federal Reserve System (US).
    9. Chang, Yongsung & Kwark, Noh-Sun, 2001. "Decomposition of hours based on extensive and intensive margins of labor," Economics Letters, Elsevier, vol. 72(3), pages 361-367, September.
    10. John Haltiwanger & Steven J. Davis, 1999. "On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation," American Economic Review, American Economic Association, vol. 89(5), pages 1234-1258, December.
    11. Sean Holly & Ivan Petrella, 2008. " Factor demand linkages and the business cycle: interpreting aggregate fluctuations as sectoral fluctuations," CDMA Conference Paper Series 0809, Centre for Dynamic Macroeconomic Analysis.
    12. Pelloni, Gianluigi & Panagiotidis, Theodore, 2003. "Macroeconomic Effects of Reallocation Shock: A Generalished Impulse Response Function Analysis for Three European Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 794-816.
    13. Jeffrey R. Campbell & Jonas D. M. Fisher, 1998. "Organizational flexibility and employment dynamics at young and old plants," Working Paper Series WP-98-24, Federal Reserve Bank of Chicago.
    14. repec:rim:rimwps:27-08 is not listed on IDEAS
    15. Hesna Genay & Prakash Loungani, 1997. "Labor market fluctuations in Japan and the U.S.--how similar are they?," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 15-28.
    16. Prakash Loungani & Bharat Trehan, 1997. "Explaining unemployment: sectoral vs aggregate shocks," Economic Review, Federal Reserve Bank of San Francisco, pages 3-15.
    17. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS
    18. Dunne, Timothy & Merrell, David R., 2001. "Gross employment flows in U.S. coal mining," Economics Letters, Elsevier, vol. 71(2), pages 217-224, May.
    19. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 5(2), pages 127-176, December.
    20. Scott Schuh & Robert K. Triest, 1998. "Job reallocation and the business cycle: new facts for an old debate," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 271-357.
    21. Scott Schuh & Robert K Triest, 1998. "Job Reallocation And The Business Cycle: New Facts An Old Debate," Working Papers 98-11, Center for Economic Studies, U.S. Census Bureau.
    22. Acconcia, Antonio & Simonelli, Saverio, 2008. "Interpreting aggregate fluctuations looking at sectors," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 3009-3031, September.
    23. Chiarini, Bruno & Piselli, Paolo, 2000. "Unemployment, Wage Pressure and Sectoral Shifts: Permanent and Temporary Consequences of Intersectoral Shocks," Journal of Policy Modeling, Elsevier, vol. 22(7), pages 777-799, December.
    24. Bruce C. Fallick & Charles A. Fleischman, 2004. "Employer-to-employer flows in the U.S. labor market: the complete picture of gross worker flows," Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (US).
    25. Panagiotidis, Theodore & Pelloni, Gianluigi, 2003. "Testing for non-linearity in labour markets: the case of Germany and the UK," Journal of Policy Modeling, Elsevier, vol. 25(3), pages 275-286, April.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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