Abstract
A model of self-selection in the labor market in the presence of private information is developed. The model is used to explain the correlation between the unemployment rate and the sectoral composition of employment first observed by D. M. Lilien (1982). The model also generates a (nonexploitable) Phillips curve and is consistent with observed correlations between hours and productivity. In addition, it is consistent with microeconomic evidence on the behavior of sectoral wage dispersions over the cycle and the absence of cyclicality associated with 'industry switching.' Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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