SECTORAL SHOCKS AND STRUCTURAL UNEMPLOYMENT

When current employers have more information about worker quality than do potential employers, sectoral shocks cause structural unemployment . That is, some workers laid off from an injured sector remain unemplo yed despite the fact that they are of sufficient quality to be product ively employed in an expanding sector at the prevailing wage. Moreover , sectoral unemployment rates are not monotonic in the severity of sec toral shocks due to the interaction of layoff activity and hiring acti vity. Finally, equilibrium employment decisions are not constrained Pa reto efficient, and can be improved by a policy of adjustment assistan ce.