Sectoral Shocks and Structural Unemployment

Michael Riordan and Robert Staiger

International Economic Review, 1993, vol. 34, issue 3, 611-29

Abstract: When current employers have more information about worker quality than do potential employers, sectoral shocks cause structural unemployment. That is, some workers laid off from an injured sector remain unemployed despite the fact that they are of sufficient quality to be productively employed in an expanding sector at the prevailing wage. Moreover, sectoral unemployment rates are not monotonic in the severity of sectoral shocks due to the interaction of layoff activity and hiring activity. Finally, equilibrium employment decisions are not constrained Pareto efficient, and can be improved by a policy of adjustment assistance. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1993
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