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Secular Labor Reallocation and Business Cycles

Gabriel Chodorow-Reich and Johannes Wieland ()

No 21864, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of mean-preserving labor reallocation on business cycle outcomes. We develop an empirical methodology using a local area's exposure to industry reallocation based on the area's initial industry composition and employment trends in the rest of the country over a full employment cycle. Using confidential employment data by local area and industry over the period 1980-2014, we find sharp evidence of reallocation contributing to worse employment outcomes during national recessions but not during national expansions. We repeat our empirical exercise in a multi-area, multi-sector search and matching model of the labor market. The model reproduces the empirical results subject to inclusion of two key, empirically plausible frictions: imperfect mobility across industries, and downward nominal wage rigidity. Combining the empirical and model results, we conclude that reallocation can generate substantial amplification and persistence of business cycles at both the local and the aggregate level.

JEL-codes: E24 E32 J6 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Published as Gabriel Chodorow-Reich & Johannes Wieland, 2020. "Secular Labor Reallocation and Business Cycles," Journal of Political Economy, vol 128(6), pages 2245-2287.

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Journal Article: Secular Labor Reallocation and Business Cycles (2020) Downloads
Working Paper: Secular Labor Reallocation and Business Cycles (2017) Downloads
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