SECTORAL EMPLOYMENT AND CYCLICAL FLUCTUATIONS IN AN ADVERSE SELECTIONMODEL

A model of self-selection in the labor market in the presence of priva te information is developed. The model is used to explain the correlat ion between the unemployment rate and the sectoral composition of empl oyment first observed by Lilien. The model also generates a (nonexploi table) Phillips curve, and is consistent with observed correlations be tween hours and productivity. In addition, it is consistent with micro -economic evidence on the behavior of sectoral wage dispersions over t he cycle, and the absence of cyclicality associated with ''industry sw itching.''