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How Important is the Intermediate Input Channel in Explaining Sectoral Employment Comovement over the Business Cycle?

Author

Listed:
  • Kim, K.
  • Kim, Y.S.

Abstract

This paper studies a multisector dynamic stochastic general equilibrium model calibrated to the 2-digit SIC level intermediate input-use and capital-use tables to investigate the importance of the intermediate input channel in explaining the sectoral employment comovement over the business cycle. In general, the business cycle comovement in employment depends on preferences as well as technology with intersectoral linkages. With indivisible labor implying that consumers do not care about the variability of leisure, the intersectoral linkages at a disaggregated level are sufficient to generate the strong business cycle comovement across sectors. With divisible labor, however, leisure-smoothing effect can dominate a sector's intersectoral linkages, implying a negative comovement. It further requires some form of worker's reluctance to substitute labor hours across sectors. Referring to some micro-level studies on the low wage elasticity of labor supply, a low substitution of labor hours is shown to generate the strong business cycle comovement in sectoral hours worked.

Suggested Citation

  • Kim, K. & Kim, Y.S., 2003. "How Important is the Intermediate Input Channel in Explaining Sectoral Employment Comovement over the Business Cycle?," Conference papers 331111, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331111
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