Jobless Recoveries and Skill-Biased Sectoral Shift

Abstract

This study first defines skill-biased sectoral shift using two stylized facts. Specifically, the shift features the service sector having more college workers and becoming more productive than the goods sector. Subsequently, this study develops a two-sector model in which the shift is incorporated via a sector-specific labor adjustment cost and a reallocation shock. Although the model generates a jobless recovery, its implications on unemployment duration are not entirely consistent with the data. Therefore, this study considers its sectoral theory as promising, but does not claim that such theory fully explains jobless recoveries, especially when the existence of many alternative explanations is considered.