We investigate whether a market-clearing model is consistent with industry
employment and wage patterns related to the cyclical upgrading of labor. We
demonstrate that Roy's (1951) market-clearing model of self-selection woul
d account for cyclical upgrading if industries were characterized by positi
ve selection. Wage comparisons of industry movers and stayers in panel data
do reveal widespread positive selection. Also consistent with the Roy mode
l, composition-corrected industry wages are more cyclical in high-wage cycl
ical industries. The Roy model does fail to explain predictable patterns in
the wage changes of industry movers, so we consider several market-clearin
g and queuing extensions.