The macroeconomic effects of labor reallocation

Abstract

This research examines the macroeconomic effects of labor reallocation using a variety of time series models. Results and conclusions are based on producing impulse response functions and variance decomposition analysis. The econometric methodology applied, follows VAR, SVAR and GVAR models. GIRFs, local IRFs and structural IRFs are mainly used to reveal the impact of job reallocation shocks to total employment in the economy. Similarly, the variance share of sectoral shocks to aggregate employment's variance indicates the importance that demand innovations have among industries in the labor market. The dataset consists of three different samples combined with alternative approaches and separated to include the USA economy itself, 28 OECD countries and 31 U.S. states. The empirical outcome of this study supports the existing evidential literature, namely that sectoral shifts play an important role in the fluctuations of total unemployment.