IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v49y2015i2p481-502.html
   My bibliography  Save this article

Sectoral shifts or aggregate shocks? A new test of sectoral shifts hypothesis

Author

Listed:
  • Yanggyu Byun
  • Hae-shin Hwang

Abstract

The sectoral shift hypothesis asserts that sectoral shifts in labor demand can generate a significant unemployment even if the aggregate demand stays the same. Past studies tested the hypothesis using the dispersion of sectoral shocks as a proxy for the size of sectoral shifts and reported contradicting results which are sensitive to the model specification. This paper shows that the dispersion of sectoral shocks alone is insufficient to capture the aggregate layoffs caused by the sectoral shocks and that the shape of the distribution (skewness) of sectoral shocks plays a significant role. The sectoral shift hypothesis is tested as a joint test of the significance of dispersion and skewness. The new test strongly supports the hypothesis, and it is robust to model specifications. Sectoral shifts are also found to be a significant source of cyclical variation in the aggregate unemployment rate. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Yanggyu Byun & Hae-shin Hwang, 2015. "Sectoral shifts or aggregate shocks? A new test of sectoral shifts hypothesis," Empirical Economics, Springer, vol. 49(2), pages 481-502, September.
    • Handle: RePEc:spr:empeco:v:49:y:2015:i:2:p:481-502
    DOI: 10.1007/s00181-014-0878-7
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00181-014-0878-7
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s00181-014-0878-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Erica L. Groshen & Simon M. Potter, 2003. "Has structural change contributed to a jobless recovery?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Aug).
    2. Bart Hobijn & Aysegul Sahin, 2013. "Beveridge Curve Shifts across Countries since the Great Recession," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 566-600, December.
    3. repec:rim:rimwps:27-08 is not listed on IDEAS
    4. Rissman, Ellen R., 1993. "Wage growth and sectoral shifts : Phillips curve redux," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 395-416, June.
    5. Nicolaas Groenewold & A. J. Hagger, 1998. "The Natural Unemployment Rate in Australia since the Seventies," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 24-35, March.
    6. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    7. Theodore Panagiotidis & Gianluigi Pelloni, 2013. "Employment Reallocation and Unemployment Revisited: A Quantile Regression Approach," Working Paper series 01_13, Rimini Centre for Economic Analysis, revised Feb 2014.
    8. Pelloni, Gianluigi & Panagiotidis, Theodore, 2003. "Macroeconomic Effects of Reallocation Shock: A Generalished Impulse Response Function Analysis for Three European Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 794-816.
    9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    10. Joshua Angrist & Victor Chernozhukov & Iván Fernández-Val, 2006. "Quantile Regression under Misspecification, with an Application to the U.S. Wage Structure," Econometrica, Econometric Society, vol. 74(2), pages 539-563, March.
    11. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper series 27_08, Rimini Centre for Economic Analysis.
    12. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-522, June.
    13. Loungani, Prakash, 1986. "Oil Price Shocks and the Dispersion Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 536-539, August.
    14. Mills, Terence C & Pelloni, Gianluigi & Zervoyianni, Athina, 1995. "Unemployment Fluctuations in the United States: Further Tests of the Sectoral-Shifts Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 294-304, May.
    15. Ellen R. Rissman, 2003. "Can sectoral labor reallocation explain the jobless recovery?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Dec.
    16. Theodore Panagiotidisa & Gianluigi Pellonib & Wolfgang Polasekc, 2003. "Macroeconomic Effects of Reallocation Shocks:A generalised impulse response function analysis for three European countries," Economics and Finance Discussion Papers 03-06, Economics and Finance Section, School of Social Sciences, Brunel University.
    17. Hwang, Hae-shin, 2009. "Two-step estimation of a factor model in the presence of observable factors," Economics Letters, Elsevier, vol. 105(3), pages 247-249, December.
    18. Ossama Mikhail & Curtis J. Eberwein & Jagdish Handa, 2003. "Can Sectoral Shifts Generate Persistent Unemployment in Real Business Cycle Models?," Macroeconomics 0311004, University Library of Munich, Germany.
    19. Palley, Thomas I, 1992. "Sectoral Shifts and Cyclical Unemployment: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 30(1), pages 117-133, January.
    20. Rand Ghayad, 2013. "A decomposition of shifts of the Beveridge curve," Public Policy Brief, Federal Reserve Bank of Boston.
    21. Sakata, Kei, 2002. "Sectoral Shifts and Cyclical Unemployment in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 227-252, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giovanni Gallipoli & Gianluigi Pelloni, 2013. "Macroeconomic Effects of Job Reallocations: A Survey," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 127-176, December.
    2. T. Panagiotidis & G. Pelloni, 2013. "Employment Reallocation and Unemployment Revisited: A Quantile Regression Approach," Working Papers wp881, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Giovanni Gallipoli & Gianluigi Pelloni, 2008. "Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature," Working Paper series 27_08, Rimini Centre for Economic Analysis.
    4. Nicolaas Groenewold & A. J. Hagger, 1998. "The Natural Unemployment Rate in Australia since the Seventies," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 24-35, March.
    5. Jinzhu Chen & Prakash Kannan & Prakash Loungani & Bharat Trehan, 2012. "New evidence on cyclical and structural sources of unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-23.
    6. Krzysztof Bartosik, 2013. "Zmiany strukturalne i koniunkturalne a zatrudnienie w polskim przemyśle przetwórczym," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 91-115.
    7. Mills, Terence C. & Pelloni, Gianluigi & Zervoyianni, Athina, 1996. "Cyclical unemployment and sectoral shifts: Further tests of the Lilien hypothesis for the UK," Economics Letters, Elsevier, vol. 52(1), pages 55-60, July.
    8. Theodore Panagiotidis & Gianluigi Pelloni, 2014. "Asymmetry and Lilien’s Sectoral Shifts Hypothesis: A Quantile Regression Approach," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 6(1), pages 68-86, June.
    9. N. Groenewold & A.J. Hagger, 1997. "The US natural rate: A "Lilien" time-series, January 1948 to August 1996," Economics Discussion / Working Papers 97-10, The University of Western Australia, Department of Economics.
    10. repec:rim:rimwps:27-08 is not listed on IDEAS
    11. N. Groenewold & A.J. Hagger, 1997. "The Natural Unemployment Rate in Australia since the Seventies," Economics Discussion / Working Papers 97-24, The University of Western Australia, Department of Economics.
    12. Sakata, Kei & McKenzie, Colin, 2004. "The accumulation of human capital and the sectoral shifts hypothesis for different age groups," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(3), pages 459-465.
    13. Esther Eiling & Raymond Kan & Ali Sharifkhani, 2018. "Sectoral Labor Reallocation and Return Predictability," Working Papers 2018-006, Human Capital and Economic Opportunity Working Group.
    14. Campbell, Jeffrey R. & Kuttner, Kenneth N., 1996. "Macroeconomic effects of employment reallocation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 87-116, June.
    15. Sonja Sheikh & Wolfgang Pauer, 1999. "Strukturelle Arbeitslosigkeit in ausgewählten Ländern der Europäischen Union unter besonderer Berücksichtigung der Mismatch-Komponente," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(3), pages 424-448.
    16. Paul R. Blackley, 1997. "The Short‐Run Relationship Between Sectoral Shifts and U.S. Labor Market Fluctuations," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 486-502, October.
    17. Reicher, Christopher Phillip, 2011. "The aggregate effects of long run sectoral reallocation," Kiel Working Papers 1720, Kiel Institute for the World Economy (IfW Kiel).
    18. Ellen R. Rissman, 2009. "Employment growth: cyclical movements or structural change?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 33(Q IV), pages 40-57.
    19. Shu‐hen Chiang, 2012. "The sources of metropolitan unemployment fluctuations in the Greater Taipei metropolitan area," Papers in Regional Science, Wiley Blackwell, vol. 91(4), pages 775-793, November.
    20. Reicher, Claire, 2014. "The aggregate effects of long run sectoral reallocation," Kiel Working Papers 1928, Kiel Institute for the World Economy (IfW Kiel).
    21. Gabriel P. Mathy, 2015. "Hysteresis and Persistent Long-Term Unemployment: Lessons from the Great Depression and World War II," Working Papers 2015-02, American University, Department of Economics.

    More about this item

    Keywords

    Sectoral shifts hypothesis; Sectoral shocks; Dispersion; Skewness; Natural rate; E24; C18; J21;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:49:y:2015:i:2:p:481-502. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.