IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/21864.html
   My bibliography  Save this paper

Secular Labor Reallocation and Business Cycles

Author

Listed:
  • Gabriel Chodorow-Reich
  • Johannes Wieland

Abstract

We study the effect of mean-preserving labor reallocation on business cycle outcomes. We develop an empirical methodology using a local area's exposure to industry reallocation based on the area's initial industry composition and employment trends in the rest of the country over a full employment cycle. Using confidential employment data by local area and industry over the period 1980-2014, we find sharp evidence of reallocation contributing to worse employment outcomes during national recessions but not during national expansions. We repeat our empirical exercise in a multi-area, multi-sector search and matching model of the labor market. The model reproduces the empirical results subject to inclusion of two key, empirically plausible frictions: imperfect mobility across industries, and downward nominal wage rigidity. Combining the empirical and model results, we conclude that reallocation can generate substantial amplification and persistence of business cycles at both the local and the aggregate level.

Suggested Citation

  • Gabriel Chodorow-Reich & Johannes Wieland, 2016. "Secular Labor Reallocation and Business Cycles," NBER Working Papers 21864, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21864
    Note: EFG LS ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w21864.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Greg Kaplan & Sam Schulhofer‐Wohl, 2017. "Understanding The Long‐Run Decline In Interstate Migration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 57-94, February.
    2. Rebecca Diamond, 2016. "The Determinants and Welfare Implications of US Workers' Diverging Location Choices by Skill: 1980-2000," American Economic Review, American Economic Association, vol. 106(3), pages 479-524, March.
    3. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.
    4. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, January-J.
    5. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2016. "The Cyclicality of the Opportunity Cost of Employment," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1563-1618.
    6. Baqaee, David Rezza, 2020. "Asymmetric inflation expectations, downward rigidity of wages, and asymmetric business cycles," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 174-193.
    7. Lucia Foster & Cheryl Grim & John Haltiwanger, 2016. "Reallocation in the Great Recession: Cleansing or Not?," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 293-331.
    8. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, February.
    9. Daniel Aaronson & Ellen R. Rissman & Daniel G. Sullivan, 2004. "Can sectoral reallocation explain the jobless recovery?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 28(Q II), pages 36-39.
    10. Kathryn Koenders & Richard Rogerson, 2005. "Organizational dynamics over the business cycle: a view on jobless recoveries," Review, Federal Reserve Bank of St. Louis, vol. 87(Jul), pages 555-580.
    11. Neil Mehrotra & Dmitriy Sergeyev, 2013. "Sectoral Shocks, the Beveridge Curve and Monetary Policy," 2013 Meeting Papers 919, Society for Economic Dynamics.
    12. Eric Sims & Michael Jason Pries, 2011. "Reallocation and the Changing Nature of Economic Fluctuations," 2011 Meeting Papers 1258, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Secular Labor Reallocation and Business Cycles
      by Christian Zimmermann in NEP-DGE blog on 2015-09-18 19:13:55

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simona E. Cociuba & James C. MacGee, 2018. "Demographics and Sectoral Reallocations: A Search Theory with Immobile Workers," UWO Department of Economics Working Papers 20182, University of Western Ontario, Department of Economics.
    2. Verdugo, Gregory & Allègre, Guillaume, 2020. "Labour force participation and job polarization: Evidence from Europe during the Great Recession," Labour Economics, Elsevier, vol. 66(C).
    3. Chodorow-Reich, Gabriel, 2020. "Regional data in macroeconomics: Some advice for practitioners," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    4. Hennicke, Moritz & Lubczyk, Moritz & Mergele, Lukas, 2020. "The big sell: Privatizing East Germany's economy," ZEW Discussion Papers 20-043, ZEW - Leibniz Centre for European Economic Research.
    5. Marco Di Maggio & Amir Kermani, 2016. "The Importance of Unemployment Insurance as an Automatic Stabilizer," NBER Working Papers 22625, National Bureau of Economic Research, Inc.
    6. Geng, Yong & Liu, Wei & Wu, Yuzhao, 2021. "How do zombie firms affect China’s industrial upgrading?," Economic Modelling, Elsevier, vol. 97(C), pages 79-94.
    7. Geoffrey J Bannister & Harald Finger & Yosuke Kido & Siddharth Kothari & Elena Loukoianova, 2020. "Addressing the Pandemic's Medium-Term Fallout in Australia and New Zealand," IMF Working Papers 2020/272, International Monetary Fund.
    8. Alistair Dieppe, 2020. "Global Productivity," World Bank Publications, The World Bank, number 34015, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes Wieland & Gabriel Chodorow-Reich, 2015. "Labor Reallocation and Business Cycles," 2015 Meeting Papers 339, Society for Economic Dynamics.
    2. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.
    3. Michael Amior, 2015. "Why are Higher Skilled Workers More Mobile Geographically? The Role of the Job Surplus," CEP Discussion Papers dp1338, Centre for Economic Performance, LSE.
    4. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    5. Michael Amior & Alan Manning, 2018. "The Persistence of Local Joblessness," American Economic Review, American Economic Association, vol. 108(7), pages 1942-1970, July.
    6. Krolikowski, Pawel & Zabek, Mike & Coate, Patrick, 2020. "Parental proximity and earnings after job displacements," Labour Economics, Elsevier, vol. 65(C).
    7. Brad J. Hershbein & Bryan A. Stuart, 2020. "Recessions and Local Labor Market Hysteresis," Upjohn Working Papers and Journal Articles 20-325, W.E. Upjohn Institute for Employment Research.
    8. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    9. Melanie Morten & Jaqueline Oliveira, 2016. "Paving the Way to Development: Costly Migration and Labor Market Integration," NBER Working Papers 22158, National Bureau of Economic Research, Inc.
    10. Ludo Visschers & Carlos Carrillo-Tudela, 2011. "Unemployment and Endogenous Reallocation over the Business Cycle," 2011 Meeting Papers 1101, Society for Economic Dynamics.
    11. Sweder van Wijnbergen & Tim Willems, 2013. "Imperfect information, lagged labour adjustment, and the Great Moderation," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 219-239, April.
    12. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.
    13. Kevin x.d. Huang & Jie Chen & Zhe Li & Jianfei Sun, 2014. "Financial Conditions and Slow Recoveries," Vanderbilt University Department of Economics Working Papers 14-00004, Vanderbilt University Department of Economics.
    14. Bauer, Anja & Keveloh, Kristin & Mamertino, Mariano & Weber, Enzo, 2020. "Competing for jobs: How COVID-19 changes search behaviour in the labour market," IAB Discussion Paper 202033, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    15. Koenig, Felix & Manning, Alan & Petrongolo, Barbara, 2014. "Reservation wages and the wage flexibility puzzle," LSE Research Online Documents on Economics 60613, London School of Economics and Political Science, LSE Library.
    16. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 127-176, December.
    17. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853, Elsevier.
    18. Andrii Parkhomenko, 2018. "The Rise of Housing Supply Regulation in the US: Local Causes and Aggregate Implications," 2018 Meeting Papers 275, Society for Economic Dynamics.
    19. Lee, Jongkwan, 2021. "The Role of a University in Cluster Formation: Evidence from a National Institute of Science and Technology in Korea," Regional Science and Urban Economics, Elsevier, vol. 86(C).
    20. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.

    More about this item

    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
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:21864. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.