TY - JOUR
T1 - Sectoral shocks and movement costs
T2 - Effects on employment and welfare
AU - Shin, Kwanho
N1 - Funding Information:
This paper is based on Chapter 3 of the author’s Ph.D. dissertation submitted to UCLA. The author is deeply grateful to Joseph Ostroy for his continuous encouragement and guidance. The author also thanks Janet Currie, Alexander David, Gregory Hess, In Ho Lee, Seonghwan Oh, Josef Perktold, Keunkwan Ryu, and especially Simon Potter and the two anonymous referees for helpful comments. This paper has been benefited from seminar participants at UCLA, the University of Kansas, Southampton University, University of Western Ontario, and Econometric Society 7th World Congress in Tokyo. The financial support of the Alfred P. Sloan Dissertation Fellowship, the National Science Foundation, and the General Research Fund at the University of Kansas is gratefully acknowledged. All remaining errors are mine.
PY - 1997
Y1 - 1997
N2 - In this paper we provide a general equilibrium model of a two-sector economy which accounts for low employment due to the incomplete responses of workers to sectoral shocks. This model is used to reconcile the seemingly contradictory results of macro and micro evidence; namely that sectoral shocks explain fluctuations of employment even though we do not observe cyclical movements of labor across sectors. We further find that increasing the frequency of sectoral shocks, holding the magnitude of the shocks fixed, decreases total employment. This allows us to account for the phenomena that the unemployment rate itself has been higher since 1970, a period characterized by an increased frequency of sectoral shocks. We also study the theoretical implications of two opposite policies: one which subsidizes mobility and the other which eliminates the partial insurance provided in the model. The former increases employment and welfare while the latter increases employment but reduces welfare.
AB - In this paper we provide a general equilibrium model of a two-sector economy which accounts for low employment due to the incomplete responses of workers to sectoral shocks. This model is used to reconcile the seemingly contradictory results of macro and micro evidence; namely that sectoral shocks explain fluctuations of employment even though we do not observe cyclical movements of labor across sectors. We further find that increasing the frequency of sectoral shocks, holding the magnitude of the shocks fixed, decreases total employment. This allows us to account for the phenomena that the unemployment rate itself has been higher since 1970, a period characterized by an increased frequency of sectoral shocks. We also study the theoretical implications of two opposite policies: one which subsidizes mobility and the other which eliminates the partial insurance provided in the model. The former increases employment and welfare while the latter increases employment but reduces welfare.
KW - Employment
KW - Movement costs
KW - Sectoral shocks
KW - Welfare
UR - http://www.scopus.com/inward/record.url?scp=0031068717&partnerID=8YFLogxK
U2 - 10.1016/s0165-1889(96)00940-2
DO - 10.1016/s0165-1889(96)00940-2
M3 - Article
AN - SCOPUS:0031068717
SN - 0165-1889
VL - 21
SP - 449
EP - 471
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - 2-3
ER -
