INTERSECTORAL MOBILITY AND SHORT-RUN LABOR-MARKET ADJUSTMENTS

This article presents a model of labor market adjustments as a sequent ial process of reallocation among various market and nonmarket sectors . Training costs introduce friction into the process, while fixed cost s of working limit work sharing, resulting in unemployment. Adjustment s in sectoral labor market variables to demand shocks can follow very different patterns, depending on relative demands and the expected dur ation of the shocks. In particular, a permanent boom in a sector may r esult in an initial increase in unemployment and reduction in working hours even as employment increases, reflecting contemporaneous substit ution between the margins and intertemporal substitution in recruitmen t.