Secular Labor Reallocation and Business Cycles / Gabriel Chodorow-Reich, Johannes Wieland.

Format:

Book

Author/Creator:

Chodorow-Reich, Gabriel.

Contributor:

National Bureau of Economic Research.

Wieland, Johannes.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21864.

NBER working paper series no. w21864

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

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.

Notes:

Print version record

January 2016.