The regional dimension of the macroeconomic effects of labour reallocation: evidence from the U.S.

Abstract

This study revisits the Sectoral Shifts Hypothesis (SSH) and its regional dimension, employing a set of homogeneous and heterogeneous panel data estimators, that account for spatial and cross-sectional dependences. The scope of our work is first, to investigate the validity of the SSH and second, to further quantify the spatial spillover effects of sectoral reallocation. We construct a large time series-panel dataset with monthly observation from 48 US. States, spanning from 1990M01 to 2019M01. Our findings support the positive and significant relationship between unemployment and cross-sectoral employment dispersion. Moreover, our results indicate the presence of positive and highly significant sectoral shifts-spatial spillover effects. This outcome is robust under alternative specifications and measures of employment dispersion. Evidence demonstrates that neglecting the spatial aspect of sectoral reallocation, can lead to systematic underestimation of sectoral shifts effects.