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Title: Technological Job Destruction and Labor Reallocation on a Job Ladder
Citation Type: Miscellaneous
Publication Year: 2017
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Abstract: This paper examines labor reallocation across industries triggered by a sectoral technology shock. Job destruction in the manufacturing industry during the 2001 and 2008 recessions reflected progress in labor-saving production technology, rather than cyclical fluctuation. The shock directly implied a slow recovery in aggregate employment and provoked massive labor reallocation. By using CPS data, I show that technologically unemployed workers initiated a chain of one-step downward transitions on a submarket ladder sorted by wage. Many unemployed workers from the manufacturing industry moved to construction, construction workers moved to retail trade, and retail trade workers moved to the food service industry. In addition, the unemployment rate from each industry sequentially reached its peak and recovery points like a domino chain. The observed labor reallocation patterns are more consistent with a model with vertical sorting and search friction. I extend Shimer and Smith’s (2000) model to illustrate that a recession can accelerate technology adoption under a capital adjustment cost, which results in lower outside options of jobless workers and pickier reservation levels for low-type recruiting firms. Although technological progress gives benefits to the entire economy in the long run, the model predicts that the sectoral shock ripples through the bottom half of labor market in the short run. Middle unemployed workers should lower their job market standard, and bottom unemployed workers end up experiencing longer unemployment duration, until total employment recovers.
Url: https://pdfs.semanticscholar.org/ceb6/e52660f134ece07ceb40d73d027e2dc0cb13.pdf
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Authors: Gil, Eunsun
Publisher: University of Wisconsin-Madison
Data Collections: IPUMS CPS
Topics: Labor Force and Occupational Structure
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