INTERSECTORAL AND INTRASECTORAL SHOCKS - EFFECTS ON THE UNEMPLOYMENT RATE

Intersectoral shocks require resource reallocation across sectors whil e intrasectoral shocks require resource reallocation within sectors. A crucial difference between these shocks is that the former require mu ch higher adjustment costs than the latter. Using accounting data to c alculate returns on capital in manufacturing industries, I generate pr oxies for these shocks. I find that the magnitude of intrasectoral sho cks is much greater than that of intersectoral shocks but intersectora l shocks explain the aggregate unemployment rate better than intrasect oral shocks. I also find that intersectoral shocks are more closely re lated to the unemployment rate in the later part of the sample conside red.