Sectoral Shifts and Cyclical Unemployment Reconsidered

61 Pages Posted: 24 Jul 2007 Last revised: 18 Jul 2010

See all articles by S. Lael Brainard

S. Lael Brainard

Deputy National Economic Advisor, The White House; National Bureau of Economic Research (NBER)

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: October 1990

Abstract

This paper examines the importance of sectoral reallocation and cyclical unemployment; in the postwar US economy. It develops a new measure of reallocation shocks based on the variance of industry stock market excess returns over time, termed cross section volatility. Data on unemployment and vacancies is used to establish that the cross section volatility series is effective in isolating reallocation shocks. The series is then used to measure the contribution of reallocation shocks to aggregate unemployment and to unemployment; of varying durations. On average, about 40 percent of aggregate unemployment is explained by reallocation, but much of the variance of unemployment through time is better explained by cyclical shocks. Reallocation shocks account; for a relatively larger share of long duration unemployment.

Suggested Citation

Brainard, S. Lael and Cutler, David M., Sectoral Shifts and Cyclical Unemployment Reconsidered (October 1990). NBER Working Paper No. w3491. Available at SSRN: https://ssrn.com/abstract=467653

S. Lael Brainard (Contact Author)

Deputy National Economic Advisor, The White House ( email )

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National Bureau of Economic Research (NBER)

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David M. Cutler

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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