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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1721:
A tale of two countries: A comparison of the aggregate effects of sectoral reallocation in the United States and Germany

Christopher Reicher

Abstract: This paper compares the aggregate effects of sectoral reallocation in the United States and Western Germany using a stochastic volatility model of sectoral employment growth. Reallocative shocks have no effect on the natural rate of unemployment in either country, and there is mild evidence that reallocative shocks are contractionary over the cycle. The overall statistical contribution of such shocks to the cycle, however, is limited. Reallocative shocks do not appear to be to blame for the rise in trend unemployment in Germany in the 1980s or for a possible rise in trend unemployment in the United States following the Great Recession

Keywords: Sectoral shifts, reallocation, natural rate, unemployment, turbulence, stochastic volatility; (follow links to similar papers)

JEL-Codes: E24,; E32,; J24,; J62; (follow links to similar papers)

27 pages, July 2011

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