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Why does employment in all major sectors move together over the business cycle?

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  • Yaniv Yedid-Levi

    (University of Britisch Columbia)

Abstract

The labor input is correlated across all major sectors. I argue that this mostly stems from fluctuations in employment, rather than hours. Therefore, it is crucial to understand the cross-sector correlation of the extensive margin. This paper advances the literature on cross-sector correlations by making unemployment an explicit feature of the model. I construct a two-sector model with search and matching friction, wage rigidity, and capital adjustment costs. The model explains the positive cross-sector correlation through characterizing movements into and out of unemployment in both sectors. Moreover, the results suggest a link between the ``co-movement'' and the "unemployment volatility" puzzles. (Copyright: Elsevier)

Suggested Citation

  • Yaniv Yedid-Levi, 2016. "Why does employment in all major sectors move together over the business cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 131-156, October.
  • Handle: RePEc:red:issued:14-20
    DOI: 10.1016/j.red.2016.07.003
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    Cited by:

    1. Dossche, Maarten & Lewis, Vivien & Poilly, Céline, 2019. "Employment, hours and the welfare effects of intra-firm bargaining," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 67-84.
    2. Steven Cassou & Jesús Vázquez, 2014. "Employment comovements at the sectoral level over the business cycle," Empirical Economics, Springer, vol. 46(4), pages 1301-1323, June.
    3. Nir Jaimovich & Itay Saporta-Eksten & Henry Siu & Yaniv Yedid-Levi, 2020. "The macroeconomics of automation: data, theory, and policy analysis," ECON - Working Papers 340, Department of Economics - University of Zurich.
    4. Alban Moura, 2018. "Investment Shocks, Sticky Prices, and the Endogenous Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 48-63, January.
    5. Hafstead, Marc A.C. & Williams, Roberton C., 2018. "Unemployment and environmental regulation in general equilibrium," Journal of Public Economics, Elsevier, vol. 160(C), pages 50-65.
    6. Christian vom Lehn & Thomas Winberry, 2018. "The Changing Nature of Sectoral Comovement," 2018 Meeting Papers 277, Society for Economic Dynamics.
    7. Alban Moura, 2018. "Investment Shocks, Sticky Prices, and the Endogenous Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 48-63, January.
    8. Sumru Altug & Serdar Kabaca, 2017. "Search Frictions, Financial Frictions, and Labor Market Fluctuations in Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(1), pages 128-149, January.
    9. Everett B. Peterson, 2019. "Incorporating Unemployment into the GTAP Model," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(2), pages 67-107, December.
    10. Sumru Altug & Serdar Kabaca & Meltem Poyraz, 2011. "Search Frictions, Financial Frictions and Labor Market Fluctuations in Emerging Economies," Koç University-TUSIAD Economic Research Forum Working Papers 1136, Koc University-TUSIAD Economic Research Forum.
    11. Domenico Ferraro, 2018. "The Asymmetric Cyclical Behavior of the U.S. Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 145-162, October.

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    More about this item

    Keywords

    Business cycles; Sectoral employment correlations; Unemployment volatility; Search and matching; Wage rigidity;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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