Macroeconomic Effects of Job Reallocations: A Survey

Abstract

This paper appraises the literature on the macroeconomic effects of job reallocations. We overview different methodological approaches to the problem of observational equivalence of aggregate and sectoral shocks and draw two main conclusions. First, the non-directional nature of reallocation shocks holds the key to the fundamental identification problem. The second conclusion is that sectoral reallocation of labor has been responsible for no less that 1/4 and no more that 2/3 of the variance of aggregate unemployment in postwar data. This wide range indicates that the importance of labor reallocation may change over time, being larger at particular historical junctures.

Regional and Sectoral Evidence of the Macroeconomic Effects of Labor Reallocation: A Panel Data Analysis

“…Panel data analyses in the field of sectoral shifts have mostly relied on fixed effects (FE) estimators and have neglected recent advances in panel data econometrics (see Gallipoli and Pelloni , , Section 5 and in particular Table 2). This oversight is a startling omission given the importance of heterogeneity, spillover effects, and common factors in the analysis of the macroeconomic effects of labor reallocation for the U.S. states.…”

Unemployment and Labor Reallocation in Europe

“…Mills et al (1996) extend the approach and purge relative sectoral employment by regressing it on a variety of explanatory factors, and Abraham and Katz (1986) use step-wise purging methods -which are criticized for over-purging, however. Gallipoli and Pelloni (2013) provide a summary of different approaches.…”

“…Other measures based on stock market indices or VAR models might also be considered. Limitations in data quality and availability forced us to neglect this issue, although such measures might be equally suitable compared to the purged Lilien measure (see Gallipoli and Pelloni (2013) for a profound analysis of various alternative methods to approximate sectoral reallocation).…”

Worker reallocation across occupations: Confronting data with theory

“…The relationship between unemployment and reallocation across industries as in the island model of Lucas and Prescott (1974) is at the heart of the sectoral shift hypothesis studied by Lilien (1982), and discussed in a subsequent paper by Abraham and Katz (1986). See Gallipoli and Pelloni (2014) for an overview of this debate.…”

“…4 In the subsequent step of the analysis, we use an equilibrium model to analyze the patterns of reallocation across occupations found in the data. We resort to the framework of Lucas and Prescott (1974) as it offers a direct formalization of the island parable put forward in the opening paragraph (Gallipoli and Pelloni, 2014). Recent research that has revamped this model, moreover, finds that it provides a basis for sound quantitative predictions; see, e.g., Alvarez and Shimer (2011).…”