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Labour Reallocation, Relative Prices and Productivity


  • Shutao Cao
  • Danny Leung


This paper documents the rate at which labour flows between industries and between firms within industries using the most recent data available. It examines the determinants of these flows and their relationship with the productivity growth. It is found that the dispersion of industry employment growth rates has been elevated since 2005, and that this increase is not likely to be related to the business cycle. It is also found that changes in real exchange rates and commodity prices can account for a significant part of the employment dispersion across industries, especially since 2005. However, shifts of employment labour between industries have generally not contributed positively to aggregate labour productivity growth. With respect to movements of labour between firms within industries, it is found that the job reallocation rates have fallen steadily over the past decade and a half. Finally, unlike labour flows between industries, excess job reallocation rates within industries are found to be strongly related to multifactor productivity and labour productivity growth at the industry level.

Suggested Citation

  • Shutao Cao & Danny Leung, 2010. "Labour Reallocation, Relative Prices and Productivity," Staff Working Papers 10-2, Bank of Canada.
  • Handle: RePEc:bca:bocawp:10-2

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    References listed on IDEAS

    1. Statistics Canada, 2004. "Industrial Competition, Shifts in Market Share and Productivity Growth," Economic Analysis (EA) Research Paper Series 2004021e, Statistics Canada, Analytical Studies Branch.
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    3. Fagerberg, Jan, 2000. "Technological progress, structural change and productivity growth: a comparative study," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 393-411, December.
    4. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    5. Robert G. Valletta & Aisling Cleary, 2008. "Sectoral reallocation and unemployment," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct17.
    6. Ravi Balakrishnan, 2008. "Canadian Firm and Job Dynamics," IMF Working Papers 08/31, International Monetary Fund.
    7. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    8. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters,in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222 National Bureau of Economic Research, Inc.
    9. Alain Paquet & Benoit Robidoux, 1997. "Issues on the Measurement of the Solow Residual and the Testing of its Exogeneity: a Tale of Two Countries," Cahiers de recherche CREFE / CREFE Working Papers 51, CREFE, Université du Québec à Montréal.
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    13. David Dupuis & Philippe Marcil, 2008. "The Effects of Recent Relative Price Movements on the Canadian Economy," Bank of Canada Review, Bank of Canada, vol. 2008(Autumn), pages 45-55.
    14. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
    15. Statistics Canada, 2007. "Not Dutch Disease, It's China Syndrome," Insights on the Canadian Economy 2007017e, Statistics Canada, Economic Analysis Division.
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    More about this item


    Productivity; Inflation and prices; Labour markets;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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