Sectoral Shifts, Labor Market Sorting, and Aggregate Fluctuations

Stephen Williamson

International Economic Review, 1990, vol. 31, issue 4, 935-52

Abstract: A model of sectoral reallocation is constructed where intersectoral friction is not caused by search or mobility costs. Instead, a sectoral disturbance has a negative effect on production possibilities because it reduces the value of previous sorting in the labor market. In equilibrium, a measure of sectoral dispersion is positively correlated with the unemployment rate. An increase in the incidence of sectoral disturbances increases unemployment at cyclical peaks and at cyclical troughs. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1990
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