Sectoral Shocks and Structural Unemployment: An Empirical Analysis

This paper is a first empirical application of the 1988 Riordan and Staiger paper, which showed that in the presence of informational asymmetries between current and potential employees about workers quality abilities, sectoral unemployment need not be monotonic in sectoral shocks. We find weak evidence in favor of the Riordan and Staiger model in that the favored sector fills more vacancies the greater is the number of layoffs in the injured sector. Making use of the empirical implications of the R & S model provides no evidence to the suggestive hypothesis that government measures that reduce the number of unemployed workers raise the duration of those who are unemployed in Sweden.