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Heterogeneity in sectoral employment and the business cycle

  • Nadezhda Malysheva
  • Pierre-Daniel G. Sarte

Using a factor analytic framework, we show that employment variations differ significantly across sectors. In some sectors, notably in goods production, employment movements are driven almost entirely by aggregate shocks. Because aggregate shocks drive business cycles (i.e., sector-specific shocks tend to average out), these sectors are then particularly sensitive to these cycles. In other sectors, mainly in service-providing activities, employment variations are virtually unrelated to aggregate shocks and instead result almost exclusively from sector-specific shocks. This heterogeneity in sectoral employment movements suggests that agents working in different sectors of the U.S. economy are affected in very different ways by changes in the economic environment.

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Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2009)
Issue (Month): Fall ()
Pages: 335-355

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Handle: RePEc:fip:fedreq:y:2009:i:fall:p:335-355:n:v.95no.4
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  1. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
  2. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, 05.
  3. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2008. "Sectoral vs. aggregate shocks : a structural factor analysis of industrial production," Working Paper 08-07, Federal Reserve Bank of Richmond.
  4. Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 453-473.
  5. John Shea, 1995. "Complementarities and Comovements," NBER Working Papers 5305, National Bureau of Economic Research, Inc.
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