How strong is co-movement in employment over the business cycle? Evidence from state/industry data

This study measures the extent of co-movement in employment across states and industries at business-cycle frequencies. The strength of co-movement is quantified using the bi-variate and multi-variate measures of cohesion developed in Crous, Forni, and Reichlin (2001). The data indicate that cohesion is generally positive for the state/industry pairs, although the distribution masses around a relatively low value. The results suggest that cohesion has risen over time and that cohesion increases with spatial aggregation. Evidence is presented revealing that the measured degree of co-movement is sensitive to the chosen periodicity of the data and that there is much greater cohesion across states for a given industry than across different industries within a state. An investigation into the sources of cross-state variation in cohesion reveals that important determinants include the strength of input-output linkages within each state, the different effects of monetary policy actions on each state's employment, and the degree of industrial diversity within a state. No state-level support is found for Shea's (1996) hypothesis that industries that locate together co-move to a greater extent than do those that are more spatially diffused.