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The Cyclical Behavior of Job Creation and Job Destruction: A Sectoral Model


  • Greenwood, Jeremy
  • MacDonald, Glenn M
  • Zhang, Guang-Jia


Three key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates and simulates a two-sector general equilibrium model that includes both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. A non-negligible amount of unemployment arises due to the presence of aggregate and sectoral shocks.

Suggested Citation

  • Greenwood, Jeremy & MacDonald, Glenn M & Zhang, Guang-Jia, 1996. "The Cyclical Behavior of Job Creation and Job Destruction: A Sectoral Model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(1), pages 95-112, January.
  • Handle: RePEc:spr:joecth:v:7:y:1996:i:1:p:95-112

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    References listed on IDEAS

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    7. Loungani, Prakash & Rogerson, Richard, 1989. "Cyclical fluctuations and sectoral reallocation : Evidence from the PSID," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 259-273, March.
    8. Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 587-609, August.
    9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
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    Cited by:

    1. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1179-1232, July.
    2. Spiros Bougheas & Carl Davidson & Richard Upward & Peter Wright, "undated". "Structural Adjustment, Turnover and Career Mobility," Discussion Papers 08/23, University of Nottingham, GEP.
    3. Bårdsen Gunnar & Hurn Stanley & McHugh Zöe, 2012. "Asymmetric Unemployment Rate Dynamics in Australia," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(1), pages 1-22, January.
    4. Erling Steigum & Øystein Thøgersen, 2003. "Borrow and Adjust: Fiscal Policy and Sectoral Adjustment in an Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 699-724, May.
    5. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    6. Huffman, Gregory W. & Wynne, Mark A., 1999. "The role of intratemporal adjustment costs in a multisector economy," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 317-350, April.
    7. David Andolfatto & Glenn MacDonald, 2004. "Jobless Recoveries," Macroeconomics 0412014, EconWPA.
    8. 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.
    9. Chen, Been-Lon & Hsu, Yu-Shan & Mino, Kazuo, 2015. "Welfare Implications And Equilibrium Indeterminacy In A Two-Sector Growth Model With Consumption Externalities," Macroeconomic Dynamics, Cambridge University Press, vol. 19(03), pages 535-577, April.
    10. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August.
    11. 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.
    12. Liyan Yang & Itay Goldstein, 2014. "Good Disclosure, Bad Disclosure," 2014 Meeting Papers 42, Society for Economic Dynamics.
    13. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-959, November.
    14. Phelan, Christopher & Trejos, Alberto, 2000. "The aggregate effects of sectoral reallocations," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 249-268, April.
    15. Veracierto, Marcelo, 2008. "On the cyclical behavior of employment, unemployment and labor force participation," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1143-1157, September.
    16. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    17. Tripier, Fabien, 2004. "Can the labor market search model explain the fluctuations of allocations of time?," Economic Modelling, Elsevier, vol. 21(1), pages 131-146, January.
    18. Spiros Bougheas & Carl Davidson & Richard Upward & Peter Wright, 2015. "Structural adjustment, job turnover and career progression," Gecomplexity Discussion Paper Series 14, Action IS1104 "The EU in the new complex geography of economic systems: models, tools and policy evaluation", revised Sep 2015.
    19. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS
    20. Kateřina Duspivová, 2011. "Role zahraničního vlastnictví z hlediska tvorby pracovních míst a fluktuace zaměstnanců
      [The Role of the Foreign Ownership in Job and Employee Flows]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(6), pages 759-774.
    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. Jordi Gali, 1995. "Non-Walrasian Unemployment Fluctuations," NBER Working Papers 5337, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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