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Secular Labor Reallocation and Business Cycles

Gabriel Chodorow-Reich and Johannes Wieland ()

Working Paper from Harvard University OpenScholar

Abstract: We revisit an old question: does industry labor reallocation affect the business cycle? Our empirical methodology exploits variation in a local area's exposure to industry reallocation based on the area's initial industry composition and national industry employment trends for identification. Applied to confidential employment data over 1980-2014, we find sharp evidence of reallocation contributing to higher local area unemployment if it occurs during a national recession, but little difference in outcomes during an expansion. A multi-area, multi-sector search and matching model with imperfect mobility across industries and downward nominal wage rigidity can reproduce these cross-sectional patterns. The same model implies that labor reallocation substantially amplifies the increase in aggregate unemployment during recessions, but has little impact on aggregate employment in expansions.

Date: 2017-01
New Economics Papers: this item is included in nep-dge and nep-mac
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http://scholar.harvard.edu/chodorow-reich/node/313261

Related works:
Journal Article: Secular Labor Reallocation and Business Cycles (2020) Downloads
Working Paper: Secular Labor Reallocation and Business Cycles (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:qsh:wpaper:313261

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