Kiel Working Papers, Kiel Institute for World Economics
No 1720:
The aggregate effects of long run sectoral reallocation
Christopher Reicher
Abstract: In this paper, I estimate a series of long run
reallocative shocks to sectoral employment using a stochastic volatility
model of sectoral employment growth for the United States from 1960 through
2011. Reallocative shocks (which primarily measure construction and
technology busts) have little effect on the natural rate of unemployment or
on long run productivity, but there is mild evidence that they are
recessionary. A broad class of theoretical models suggests that the
contractionary effect of a reallocative shock should come from the direct
aggregate effect of the underlying shock and not from human capital
mismatch. Looking at the period of the Great Recession, reallocation has
had no detectable effect on the natural rate of unemployment and can count
for a 0.5% rise in cyclical unemployment from 2007 through the end of 2009
and 0.3% through the beginning of 2011
Keywords: Mismatch, sectoral shifts, reallocation, natural rate, unemployment, Great Recession, stochastic volatility; (follow links to similar papers)
JEL-Codes: E24,; E32,; E66,; J24,; J62; (follow links to similar papers)
63 pages, July 2011
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