On the Driving Forces Behind Cyclical Movement, in Employment and Job Reallocation

61 Pages Posted: 17 Mar 1997 Last revised: 14 Oct 2022

See all articles by Steven J. Davis

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Date Written: September 1996

Abstract

We rely on a decomposition of employment changes into job creation and job destruction components - and a novel set of identifying restrictions that this decomposition permits - to develop new evidence about the driving forces behind aggregate fluctuations and the channels through which they operate. We implement our approach to identification using quarterly postwar U.S. data on oil shocks, monetary shocks, and manufacturing rates of job creation and destruction. Our analysis delivers many inferences: 1) The data favor a many- shock characterization of fluctuations in employment and job reallocation, 2) Theories of employment fluctuations that attribute a predominant role to aggregate shocks must in order to fit the data involve contemporaneous effects of such shocks on job destruction that are at least as large as the effects on job creation, 3) Theories in which aggregate shocks primarily affect the first moment of the cross-sectional density of employment growth imply that allocative shocks have bigger contemporaneous effects on destruction than on creation and, hence, that allocative shocks reduce aggregate employment, 4) Allocative shocks drive most fluctuations in the intensity of job reallocation, 5) Oil shocks drive employment fluctuations through a mixture of allocative and aggregate channels, 6) Monetary shocks trigger job creation and destruction dynamics that fit the profile of an aggregate shock.

Suggested Citation

Davis, Steven J. and Haltiwanger, John C., On the Driving Forces Behind Cyclical Movement, in Employment and Job Reallocation (September 1996). NBER Working Paper No. w5775, Available at SSRN: https://ssrn.com/abstract=3807

Steven J. Davis (Contact Author)

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany