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Employment Risk, Diversification, and Unemployment

George R. Neumann and Robert H. Topel
The Quarterly Journal of Economics
Vol. 106, No. 4 (Nov., 1991), pp. 1341-1365
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2937967
Page Count: 25
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Employment Risk, Diversification, and Unemployment
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Abstract

This paper studies determinants of the geographic distribution of unemployment in the United States since 1950. We argue that "equilibrium" differences in unemployment among markets are partially supported by corresponding differences in the covariance structure of sectoral demands for labor. When workers are mobile, greater diversification of sectoral demands reduces unemployment. We confirm this point using pooled time-series--cross-section data on state unemployment and employment by industry. We also find evidence for nonneutrality of aggregate disturbances based on geographic differences in industrial composition, and that permanent changes in the sectoral composition of employment lead to transitory fluctuations in unemployment.

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