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The Critique of Sectoral Shifts and Cyclical Unemployment Some unemployment is Impossible to evade in free market economics. Variations of factors, such as the demand for their products or the cost of inputs to production, require firms continually to adjust the size of their labors force. Even in periods of stable aggregate employment, continuous labor reallocation within the United States results in almost 5 percent of employment leaving old jobs for new ones every month. Because it takes time for separated workers to be matched to jobs, some positive level of unemployment will always exist. Economists have long recognized this fact and have labeled this necessary quantity of unemployment the frictional, natural, or equilibrium unemployment rate.
Unemployment is simply the time it takes workers displaced from contracting firms to find employment in expanding firms. The quantity of unemployment generated by shifts of employment demand will thus depend on the speed with which workers find new jobs. If workers have strong firm or industry attachments, due in part to firm and industry specific skills and to wage premiums associated with seniority, they are reluctant to seek employment in other sectors of the economy. Thus the process of adjustment to sectoral shifts tends to be slow and typically involves significant unemployment before labor adjusts fully to new patterns of employment demand. There are policy implications as the objectives of the paper.
It suggests that no monetary factors, whether viewed as supply shocks or as shifts of the natural rate, have been an important source of cyclical unemployment and deserve greater attention in the business cycle literature. In the article (sectoral shifts and cyclical unemployment by Lillian M. David) the author used the Lucas and Prescott (1947) model. This model is one most relevant to this paper. In their paper, Lucas and Prescott expressly derive the equilibrium unemployment rate from the assumptions that labor is exchanged in many spatially distinct markets and that labor mobility between markets is time consuming. Much of the unemployment of the seventies could not have been avoided through aggregate monetary and fiscal policies.
Such policies may have been successful in delaying or smoothing the cyclical pattern of unemployment, but since inadequate demand was not the source of unemployment, aggregate demand was not the source of unemployment; aggregate demand policies were not an appropriate cure. This is in marked contrast to the early sixties, where our estimates suggest that unemployment was well above the natural rate, due in part to several years of lower-than-anticipated monetary growth (as measured by DMR) or, more generally, to a concretionary set of aggregate demand policies. The inability of aggregate demand policies to eliminate unemployment induced by real factors does not rule out a role for all policy. The author used the methodologies heuristic explanation and linearized version of equation. This is a theoretical paper. The author used the best examples, tables figures and different studies.
This makes the article interested and easy to understand. Use of appropriate examples and tables in this paper makes a contribution in the literature. The arguments are very sound and well defined. The analysis of the paper is correct, and the work done by the author has results that pertain to current policies.
The results are presented in the theoretical analysis, figures and in the form of the tables. The illustration and tables are very clear. The information regarding tables is collected from The Handbook of the labor statistics. The illustration and tables are clear.
The paper explicitly derives the equilibrium unemployment rate from the assumptions that labor is exchanged in many spatially distinct markets and that labor mobility between markets is time consuming. While aggregate demand is assumed to be constant in their model, the product demand in individual markets is subject to stochastic fluctuations. Random fluctuations of product demand within the markets induce fluctuations of labor demand and lead to temporary wage differentials between markets. These wage differentials encourage shifts of sectoral labor supply as workers leave low wage markets for high-wage markets.
Since the process of moving from one market to another is time consuming, a positive level of unemployment exists in stationary equilibrium. The stationary equilibrium described by Lucas and Prescott assumes that the process generating market-specific demand fluctuations has constant variance over time and therefore yields a constant equilibrium unemployment rate. In the real world there is little reason to believe that the variance of firm specific or market specific demand in time invariant. On the other hand changes in the product demand, changes in capital and raw material coasts, and changes in wage rates influence firms hiring decisions. Rather than model these factors explicitly, we will divide the factors that affect firm hiring into two components those that affect all firms in the economy and those that are specific to individual firms. The Sectoral shift trend is getting a worst shape in developing as well as developed countries.
The trend is suppose to be originated from America and other developed western countries. But now a day it is being practiced every developing countries and it is growing day by day. The employee working in sectoral shifts dont have any facilities and benefits like other regular employees do. This is a temporary job and there is zero job security.
The employee who works in sectoral shift can be terminated at any time from the service. Even the employee couldnt draw other benefits like earn leave, medical leave, provident fund etc... Even in case of some mishap while working the worker or his family members can not claim anything from the organization. Bibliography: Rai University's study on engineering economics, chapter- definition of unemployment
Free research essays on topics related to: unemployment rate, cyclical unemployment, time consuming, aggregate demand, natural rate
Research essay sample on The Critique Of Sectoral Shifts And Cyclical Unemployment
