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Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality

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  • Jacob Wong

    () (School of Economics, University of Adelaide)

Abstract

This paper presents a dynamic model of structural unemployment and occupational choice in which an economy is subjected to aggregate reallocation shocks. Reallocation shocks, which change the relative labour productivity across occupations, drive variation in the distribution of workers across occupations. The wage paid to workers in a given occupation depends on its labour productivity and the number of workers employed in that occupation. Workers who wish to switch occupations in order to obtain higher wages face a fixed cost to retrain and, in addition, it is more costly to switch to occupations requiring vastly different skills relative to those of the worker's current occupation. Thus workers may prefer to remain unemployed in occupations su ering through relatively low productivity states. Between the late-1970s and the mid-2000s the U.S. economy featured an episode during which occupational mobility rose along with an increase in wage inequality both in the top and bottom halves of the wage distribution. This was followed by an episode during which occupational mobility fell, while a rise in inequality in the top half of the wage distribution was accompanied by a fall in inequality in the bottom half. The model can produce episodes with properties similar to that of the U.S. experience and thus offers a theory of why these episodes occur.

Suggested Citation

  • Jacob Wong, 2012. "Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality," School of Economics Working Papers 2012-04, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2012-04
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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2012-04.pdf
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    References listed on IDEAS

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    1. Guido Matias Cortes, 2016. "Where Have the Middle-Wage Workers Gone? A Study of Polarization Using Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 63-105.
    2. Eric Sims & Michael Jason Pries, 2011. "Reallocation and the Changing Nature of Economic Fluctuations," 2011 Meeting Papers 1258, Society for Economic Dynamics.
    3. Young, Eric R., 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm and non-stochastic simulations," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 36-41, January.
    4. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
    5. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
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    Citations

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    Cited by:

    1. Herz, Benedikt & van Rens, Thijs, 2015. "Accounting for Mismatch Unemployment," IZA Discussion Papers 8884, Institute for the Study of Labor (IZA).
    2. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    3. Bauer, Anja, 2015. "Reallocation patterns across occupations," IAB Discussion Paper 201526, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    Occupational Mobility; Wage Inequality;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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