Inter- and Intrasectoral Shocks: Effects on the Unemployment Rate.

Intersectoral shocks require resource reallocation across sectors while intrasectoral shocks require resource reallocation within sectors. A crucial difference between these shocks is that the former require much higher adjustment costs than the latter. Using accounting data to calculate returns on capital in manufacturing industries, the author generates proxies for these shocks. The author finds that the magnitude of intrasectoral shocks is much greater than that of intersectoral shocks but intersectoral shocks explain the aggregate unemployment rate better than intrasectoral shocks. He also finds that intersectoral shocks are more closely related to the unemployment rate in the later part of the sample considered. Copyright 1997 by University of Chicago Press.