The Cyclical Behavior of Job Creation and Job Destruction: A Sectoral Model

Abstract

Three key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates, and simulates a two sector general equilibrium model including both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. Sectoral shocks play a significant role in determining the aggregate level of nonemployment.

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