THE SHORT-RUN RELATIONSHIP BETWEEN SECTORAL SHIFTS AND US LABOR-MARKET FLUCTUATIONS

Monthly data for the aggregate U.S. economy are used to assess competi ng hypotheses concerning the relationship between sectoral employment shifts and fluctuations in the unemployment rate. It is shown that sec toral shifts are caused by major work stoppages, aggregate fluctuation s unrelated to permanent sectoral shifts, a reallocation-timing effect , and allocative shocks at the sectoral level. Larger employment shift s are associated with higher unemployment during slow growth periods a nd lower unemployment during above-average growth periods. Models are presented which demonstrate that both aggregate and allocative shocks are causes of cyclical increases in unemployment.