Inter-Industry Mobility and the Cyclical Upgrading of Labor

Abstract

We investigate whether a market-clearing model of the labor market is consistent with the cyclical upgrading of labor: workers tend to move to higher paying industries in expansions and to lower paying industries in contractions. By applying Roy's (1951) model of self-selection to industry fluctuations, we show that cyclical upgrading can be consistent with market clearing. Applying the model to inter-industry mobility patterns in panel data, we find data of substantial selection by comparative advantage. However, the panel data reveal a selection process that is consistent with cyclical upgrading. Thus the model does not simultaneously account for interindustry mobility in panel data and cyclical upgrading.