Labor Market Inefficiency and Economic Restructuring: Evidence from Cross‐Sectoral Data

Abstract

The U.S. business cycle that began with the recession of 2001 featured both a “jobless recovery” and substantial structural change, leading some to ponder the “Sectoral Shift Hypothesis,” whereby restructuring purportedly creates labor market inefficiencies. Previous studies have analyzed aggregate time series, but new data permit a cross‐sectoral comparison between restructuring and increased labor market inefficiency (as measured from sector Beveridge curves). This paper develops an estimation method and quantifies substantial increases in inefficiency during this period. However, contrary to the hypothesis, the increased inefficiency bears little relationship to the extent of sectors' structural change.