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Secular Labor Reallocation and Business Cycles

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  • Gabriel Chodorow-Reich
  • Johannes Wieland

Abstract

We revisit an old question: does industry labor reallocation affect the business cycle? Our empirical methodology exploits variation in a local area's exposure to industry reallocation based on the area's initial industry composition and national industry employment trends for identification. Applied to confidential employment data over 1980-2014, we find sharp evidence of reallocation contributing to higher local area unemployment if it occurs during a national recession, but little difference in outcomes during an expansion. A multi-area, multi-sector search and matching model with imperfect mobility across industries and downward nominal wage rigidity can reproduce these cross-sectional patterns. The same model implies that labor reallocation substantially amplifies the increase in aggregate unemployment during recessions, but has little impact on aggregate employment in expansions.

Suggested Citation

  • Gabriel Chodorow-Reich & Johannes Wieland, 2017. "Secular Labor Reallocation and Business Cycles," Working Paper 313261, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:313261
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    1. Secular Labor Reallocation and Business Cycles
      by Christian Zimmermann in NEP-DGE blog on 2015-09-18 19:13:55

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    17. Leonard Bocquet, 2022. "The Network Origin of Slow Labor Reallocation," Working Papers halshs-03703862, HAL.
    18. Arpit Gupta & Anup Malani & Bartek Woda, 2021. "Explaining the Income and Consumption Effects of COVID in India," NBER Working Papers 28935, National Bureau of Economic Research, Inc.
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    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

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