This paper compares the aggregate effects of sectoral reallocation in the United States and Western Germany using a stochastic volatility model of sectoral employment growth. Reallocative shocks have no effect on the natural rate of unemployment in either country, and there is mild evidence that...

The study uses a bivariate unobserved components model for output and the unemployment rate in order to examine stylised facts of the cyclical behaviour of unemployment and to estimate the size of persistence. The model is applied to the U.S., Canada, and major European economies. Estimates of...