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

Listed author(s):
  • Yaniv Yedid-Levi

    (University of Britisch Columbia)

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)

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File URL: http://dx.doi.org/10.1016/j.red.2016.07.003
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 22 (2016)
Issue (Month): (October)
Pages: 131-156

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Handle: RePEc:red:issued:14-20
DOI: 10.1016/j.red.2016.07.003
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