Why does employment in all major sectors move together over the business cycle?

Yaniv Yedid-Levi

Review of Economic Dynamics, 2016, vol. 22, 131-156

Abstract: The labor input is correlated across all major sectors. I argue that this mostly stems from fluctuations in employment, rather than hours. Therefore, it is crucial to understand the cross-sector correlation of the extensive margin. This paper advances the literature on cross-sector correlations by making unemployment an explicit feature of the model. I construct a two-sector model with search and matching friction, wage rigidity, and capital adjustment costs. The model explains the positive cross-sector correlation through characterizing movements into and out of unemployment in both sectors. Moreover, the results suggest a link between the ``co-movement'' and the "unemployment volatility" puzzles. (Copyright: Elsevier)

Keywords: Business cycles; Sectoral employment correlations; Unemployment volatility; Search and matching; Wage rigidity (search for similar items in EconPapers)
JEL-codes: E20 E24 E32 J64 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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DOI: 10.1016/j.red.2016.07.003

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