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Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?

  • Abraham, Katharine G.
  • Katz, Lawrence F.

Recent work by David Lilien has argued that the positive correlation between the dispersion of employment growth rates across sectors (a) and the unemployment rate implies that sectoral shifts in labor demand are responsible for a substantial fraction of cyclical variation in unemployment. This paper demonstrates that, under empirically satisfied conditions, traditional single-factor business-cycle models will produce a positive correlation between (sigma) and the unemployment rate. Information on the job vacancy rate permits one to distinguish between a pure sectoral shift and a pure aggregate demand interpretation of this positive correlation. The finding that a and the volume of help wanted advertising (a job vacancy proxy) are negatively related supports an aggregate demand interpretation.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3442781/Katz_CyclicalUnemployment.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3442781.

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Date of creation: 1986
Date of revision:
Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:3442781
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  1. Robert J. Barro, 1976. "Unanticipated Money Growth and Unemployment in the United States," Working Papers 234, Queen's University, Department of Economics.
  2. Charles Holt & Martin David, 1966. "The Concept of Job Vacancies in a Dynamic Theory of the Labor Market," NBER Chapters, in: The Measurement and Interpretation of Job Vacancies, pages 73-110 National Bureau of Economic Research, Inc.
  3. Jackman, R & Layard, Richard & Pissarides, C, 1989. "On Vacancies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 377-94, November.
  4. Robert J. Barro & Mark Rush, 1980. "Unanticipated Money and Economic Activity," NBER Chapters, in: Rational Expectations and Economic Policy, pages 23-73 National Bureau of Economic Research, Inc.
  5. Rosen, Sherwin, 1983. "Unemployment and insurance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 19(1), pages 5-49, January.
  6. Abraham, Katharine G, 1983. "Structural-Frictional vs. Deficient Demand Unemployment: Some New Evidence," American Economic Review, American Economic Association, vol. 73(4), pages 708-24, September.
  7. Barro, Robert J, 1984. "Rational Expectations and Macroeconomics in 1984," American Economic Review, American Economic Association, vol. 74(2), pages 179-82, May.
  8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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