Skill-Biased Reallocation

Fergal Hanks

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Workers displaced by the reallocation of labor demand across industries suffer persistent earnings losses, in large part due to higher unemployment risk. This paper quantifies the aggregate unemployment implications of a reallocation of labor demand. I develop a search and matching model with multiple industries and industry specific skill that is calibrated to the US economy. In the model a reallocation shock leads to up to a 0.5 percentage points rise in unemployment. The combination of industry specific skill and imperfect substitutability between workers of different skill levels are key to this result.

Date: 2025-09-30
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