![]() The sources of the downturn are largely concentrated in the construction and finance sectors, as overshooting of equilibrium housing prices through various mechanisms has caused a sharp reduction in construction activity and widespread, deep downgrading of asset values for many financial institutions. economic slowdown also reflects the influence of important sectoral imbalances that have raised the NAIRU. In a similar vein, Phelps (2008) has argued that the current U.S. ![]() economy, which caused the equilibrium unemployment rate to fluctuate by about 3 percentage points over the decade. He concluded that the wide unemployment fluctuations in the 1970s were largely induced by unusual structural shifts in the U.S. In his seminal research, Lilien (1982) provided empirical estimates of the variation in the equilibrium unemployment rate that could be attributed to sectoral reallocation. Such individuals may not be viable candidates for available jobs and hence may exert little or no downward pressure on wages, which implies that the increased unemployment due to their job search activities reflects a higher equilibrium unemployment rate, or NAIRU. Moreover, during periods of intensive sectoral reallocation, a mismatch can arise between the skills of workers who have exited shrinking sectors and the job requirements in expanding sectors. Such imbalances require sectoral reallocation of workers, and the resulting job changes often entail an intervening spell of unemployment, which raises the overall unemployment rate. More critically, direct measurement of the degree of sectoral dispersion in employment growth suggests that its extent has been limited thus far, providing little support for the claim of a higher NAIRU.Įconomists have long recognized that the prevailing unemployment rate contains an important structural component, which reflects, among other things, imbalances in the growth of labor demand across industry sectors. However, these movements are consistent with cyclical as well as secular changes. Recent changes in the unemployment/vacancy plot are consistent with a modest decline in the efficiency of the job matching process, which may be associated with sectoral imbalances. ![]() After describing the specifics of the argument, we turn to two primary sources of empirical evidence regarding its extent: the Beveridge curve, which depicts the relationship between vacancies and unemployment, hence the effectiveness of the job matching process and direct evidence on the degree of sectoral reallocation of employment. This Economic Letter examines the evidence for this “sectoral reallocation” interpretation of the current downturn. Because the NAIRU plays a central role in the inflationary process, and because many economists agree that the NAIRU has fluctuated substantially in past decades, this argument merits serious consideration. He argues that this reallocation of workers across sectors has led to an increase in the nonaccelerating inflation rate of unemployment (NAIRU). However, Phelps (2008) has outlined an alternative interpretation for much of the recent increase in unemployment, emphasizing structural imbalances in the economy that require substantial movements of workers across industry sectors. High unemployment generally is associated with increased slack in labor markets, hence reduced pressure for wage inflation. unemployment rate to rise by nearly 2 percentage points and approach the high of 6.3% reached in the aftermath of the 2001 recession.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |