Skill-Biased Reallocation

Abstract

Workers displaced by the reallocation of labor demand across industries suffer persistent earnings losses, in large part due to higher unemployment risk. This paper quantifies the aggregate unemployment implications of a reallocation of labor demand. I develop a search and matching model with multiple industries and industry specific skill that is calibrated to the US economy. In the model a reallocation shock leads to up to a 0.5 percentage points rise in unemployment. The combination of industry specific skill and imperfect substitutability between workers of different skill levels are key to this result.