Sectoral Shifts and Cyclical Fluctuations

Abstract

This paper studies a two sector real business cycle model in which the sectors experience different trend rates of growth and labor mobility is costly. Predictions are derived concerning the correlation between sectoral reallocation of workers and the cycle. This correlation may be positive or negative depending upon whether the growing sector displays larger or smaller fluctuations than the shrinking sector. The post-World War II period has witnessed two major patterns of sectoral change in industrialized countries: movement out of agriculture and movement out of the industrial sector. The model's basic prediction is shown to be consistent with the observed pattern of reallocation.