How Important is the Intermediate Input Channel in Explaining Sectoral Employment Comovement over the Business Cycle?

Transcription

1 How Imporan i e Inermediae Inpu Cannel in Explaining Secoral Employmen Comovemen over e Buine Cycle? K. Kim a and Y.S. Kim b a Scool of Economic and Finance, Vicoria Univeriy of Wellingon, Wellingon, New Zealand b Deparmen of Economic, Kyung Hee Univeriy, Seoul, Korea April, 2003 Abrac: Ti paper udie a muliecor dynamic ocaic general equilibrium model calibraed o e 2-digi SIC level inermediae inpu-ue and capial-ue able o inveigae e imporance of e inermediae inpu cannel in explaining e ecoral employmen comovemen over e buine cycle. In general, e buine cycle comovemen in employmen depend on preference a well a ecnology wi inerecoral linkage. Wi indiviible labor implying a conumer do no care abou e variabiliy of leiure, e inerecoral linkage a a diaggregaed level are ufficien o generae e rong buine cycle comovemen acro ecor. Wi diviible labor, owever, leiure-mooing effec can dominae a ecor' inerecoral linkage, implying a negaive comovemen. I furer require ome form of worker' relucance o ubiue labor our acro ecor. Referring o ome micro-level udie on e low wage elaiciy of labor upply, a low ubiuion of labor our i own o generae e rong buine cycle comovemen in ecoral our worked. Keyword: Inermediae inpu cannel; Secoral employmen comovemen; uliecor dynamic ocaic general equilibrium model

2 . INTRODUCTION I i well known a, over e buine cycle, mo ecor of e economy move up and down ogeer. Ti comovemen i a cenral par of e definiion of e buine cycle. Under e Naional Bureau of Economic Reearc' (NBER) definiion, for example, "a receion i a period of decline in oal oupu, income, employmen, and rade, uually laing from ix mon o a year, and marked by widepread conracion in many ecor of e economy." ore recenly, Criiano and Fizgerald (998) documen ubanial buine cycle comovemen for our worked acro ecor in e US. Over e la wo decade, owever, macroeconomi ave mainly focued on underanding e perience and volailiy in e cyclical flucuaion of aggregae economic daa. Sandard model of buine cycle uc a Kydland and Preco (982) and King e al. (988), conider a ingle ecor economy o examine e up and down of aggregae economic aciviy. For e obviou reaon, ee model are no ueful o explain a key defining caraceriic of e buine cycle: e comovemen of economic aciviy acro many ecor. oivaed by e obervaion a ome of e oupu of e nondurable good ecor i alo ued a inermediae good in e producion of durable (invemen) good, Hornein and Pracnik (997) modify a andard real buine cycle model o accommodae i "inermediae good cannel" of e economy. During a boom, i a e effec of increaing e value of oupu in e nondurable (or conumpion) ecor wi e increaed need for i oupu for ue in e invemen ecor. Wi indiviible labor and perfecly mobile labor acro e wo ecor, eir model generae rong conemporaneou correlaion for ecoral employmen. However, e Hornein-Pracnik' wo ecor model i no conien wi e oberved comovemen in invemen acro ecor. Criiano and Fizgerald (998) alo examine daa on e ubecor of e nondurable good ecor and noe e "weak" relaionip beween employmen comovemen and e inermediae good cannel, meaured a e fracion of a nondurable ecor' gro oupu wic i ued a inermediae good en for e producion of final invemen good. In order o furer explore e role of e inermediae good cannel in accouning for comovemen of employmen and invemen acro ecor, we conider a muc broader inermediae good cannel wic allow for e poenial ue of a ecor' oupu (nondurable or durable) a inermediae inpu and/or capial inpu in e producion of nondurable or durable (including final invemen good). ore pecifically, i paper i o inveigae e imporance of e inermediae good cannel in e conex of a muliecor dynamic ocaic general equilibrium model wi more diaggregaed producion ecor. Very recenly, Horva (998, 2000) ave developed a generalized verion of Long and Ploer (983). Calibraed o e 2-digi Sandard Indurial Code (SIC) level of diaggregaion (uing e inermediae inpu-ue and e capial-ue marice), i ow a e model can mac aggregae flucuaion in e US wi independen ecoral ock only. However, Horva (2000) focue only on

3 e iue of underanding e perience and volailiy in aggregae flucuaion along wi e relaive volailiie of ecoral flucuaion, ignoring e yncronized naure of economic aciviy (e.g., employmen comovemen) acro ecor. In order o examine e ignificance of e diaggregaion level in Hornein and Pracnik (997) (wic aume only wo ecor, nondurable and durable), we fir examine an indiviible-labor verion of Horva (2000) calibraed o e 2-digi SIC level (e.g. 36 ecor) of e inermediae inpu-ue and e capial-ue able. Te model imulaion yield rong ecoral employmen comovemen over e buine cycle. Wi indiviible labor implying a conumer do no care abou e variabiliy of leiure, ecoral employmen depend largely on i oupu wic can be poenially allocaed o e following ree ue: inermediae inpu in e indurial ecor, invemen good buil ino e capial ock of e ecor, and final conumpion good. Terefore, a long a bo e inermediae inpu-ue and e capial-ue marice a a diaggregaed level indicae ufficienly rong inerecoral linkage, ecoral employmen end o comove over e buine cycle. Te model imulaion ow a e inerecoral linkage in e acual daa are rong enoug o generae e employmen comovemen. oreover, e inerecoral linkage are conien wi e comovemen in invemen acro ecor, aloug i ize i below e acual one. Aloug ee finding are qualiaively imilar o oe in Hornein and Pracnik (997), e ecoral comovemen in employmen depend crucially on e indiviiblelabor pecificaion of preference. Wi diviible labor or leiure-mooing in e ene a conumer prefer a le variable leiure, a given ecor' our worked are negaively relaed o oe in e oer ecor. Hence, for oe ecor woe oupu i en rivially for e inpu in e producion ecor, e inerecoral linkage can be dominaed by e "leiure-mooing" effec, yielding negaive employmen comovemen. Noing e low wage elaiciy of labor upply and perien wage difference acro ecor, we imulae a diviible-labor verion of Horva (2000) were elaiciy of ubiuion of labor upply i relaively low acro ecor. An inerpreaion of i pecificaion i a e repreenaive worker/conumer a a preference for diveriy of labor our depie wage difference acro ecor. Ti modificaion i analogou o Boldrin e al. (999) wic aume limied labor mobiliy beween indury ecor, aloug ey require addiional rericion on preference in e form of abi perience o guaranee comovemen. We find a, a long a e elaiciy of ubiuion of labor acro ecor i ufficienly mall, e muliecor model calibraed o e 2-digi SIC level of diaggregaion (i.e. 36 ecor) can generae e oberved rong comovemen of ecoral our worked. Terefore, in e preence of e wide variaion in e fracion of a given ecor' oupu canneled (a inermediae inpu and capial good) o e producion procee of many oer ecor, e inermediae cannel i no ufficien o generae e rong buine cycle comovemen acro ecor: i furer require ome form of worker' relucance o ubiue our worked acro ecor. 2

4 Te paper i organized a follow. Secion 2 decribe e model economy and e definiion of compeiive equilibrium, followed by e model calibraion a in Horva (2000). Secion 3 preen imulaion reul on e buine cycle comovemen of ecoral our worked. Secion 4 ummarize e paper. 2. THE ODEL In order o examine e ignificance of e inermediae-good linkage in e buine cycle comovemen, we fir generalize Hornein and Pracnik (997)' wo-ecor dynamic ocaic general equilibrium model o 36 ecor a e 2-digi SIC level of diaggregaion woe ecoral linkage are calibraed o e inermediae inpu-ue and e capial-ue able. 2.. Te Environmen Te model economy coni of (ay, 36) diinc ecor, indexed by =, 2,...,, eac producing a differen good. Te ecnologie are diinc acro e ecor. ulifacor produciviy in eac ecor i ubjec o ocaic innovaion wic are no perfecly correlaed acro ecor. Te oupu of eac ecor goe o poenially ree differen ue. Fir, ome good are ued a inermediae inpu in e producion of oer good and ecor do no necearily ue e ame inermediae inpu. Second, ome good are buil ino e capial ock of e ecor in e economy and eac ecor a a diinc capial ock. Finally, a porion of oupu in eac ecor i upplied o a final conumpion marke. I i aumed a inermediae inpu are delivered and eier ued wiin one period or buil ino e capial ock of e purcaing ecor. Te producion of eac ecor i conrolled by firm wic operae o a o maximize eir expeced preen dicouned value o areolder. y An oupu,, of good i produced by combining capial in e ecor,, labor, n, and an index of inermediae inpu, in a producion proce given by k ( α ) ( β y A k n ) ( γ = ), () were conan reurn o cale implie α + β + γ =. In (), repreen e mulifacor produciviy or ae of ecnology in ecor, wic i aumed o follow a ocaic proce given by A A = ρ A + ε, (2) 3

5 were ε i a erially uncorrelaed, normally diribued random variable wi mean zero and E ( εε ) = Ω. Te index of inermediae inpu for ecor a a Cobb-Dougla form wic implie a uniary elaiciy of ubiuion beween inpu: = ( m ) (3) B, x were m, denoe e quaniy of good purcaed by ecor a period for inermediae inpu and B denoe e e of ecor indice wic are inpu o e producion of good. Te weig are normalized o aify: x = and x = γ γ were γ i e elemen of Γ m, e inermediae inpu-ue marix, denoing e co are of oal expendiure on inermediae good in ecor due o purcae of inermediae good from ecor. And γ denoe e um of e column in Γ. m Furer, capial i accumulaed roug an invemen proce given by B k ( µ ) k = + η( i ) (4) were µ i a ecor pecific depreciaion rae. Te (compoie) invemen good for ecor i creaed by combining inpu in a Cobb-Dougla form: x η( i ) = ( i ) I B, (5) were i, denoe e quaniy of good purcaed by ecor for invemen purpoe I and B denoe e e of ecor from wic ecor purcae inermediae good for capial invemen. And e weig x i derived from e capial inpu-ue marix, Γ I, imilarly o e weig x in e index of inermediae inpu (3). Now, in order o ow a Hornein-Pracnik (997)' wo-ecor (nondurable and durable) pecificaion i a pecial cae of e more diaggregaed muliecor 4

6 pecificaion, le N and D denoe repecively e e of indurial ecor producing nondurable and durable good. Fir of all, Hornein and Pracnik (997) aume a reduced verion of e producion ecnology () uc a e producion of nondurable good doe no require inermediae inpu. Ta i, γ = 0 in () o a ( α y A k ) ( n β = ) for all D. Furer, ey implified e ecoral inermediae inpu index (3) by auming a e oupu of durable good i no ued a inermediae inpu in e producion of bo nondurable and durable good: a i, x = 0 for all D in (3), wic implie = ( m ) were B, x B N Te compoie ecoral invemen good i alo implified by auming a e oupu of nondurable good i no buil ino e capial ock in e producion ecor: a i, x = 0 for all N in (5), and ence x η( i ) = ( i ) were I B, I B D In Hornein and Pracnik (997), e e of nondurable- and durable-good ecor are repecively aggregaed o a ingle ecor eac, wic reduce e above pecificaion even furer. Ta i, ( α y A k ) ( n α = ) for N, ( α ) ( β y A k n ) ( γ = ), m, η ( i ) i, =, for D and N, and = for N, D and D wic implifie e law of moion of capial accumulaion (4) o k ( µ ) k + i, for N, D and D. Te conumer-areolder allocae labor our o e variou indury ecor and make conumpion-aving deciion. A in Hornein and Pracnik (997), e repreenaive conumer eek o maximize i or er dicouned expeced uiliy wi indiviible labor given by E δ [log C χ( L)], 0< δ < and χ > 0 (6) 0 = 0 5

7 ubjec o: n p ( ) c = p n + d + q q + a = = = = (7) In (6), δ (0,) i a dicoun facor, C i an aggregae conumpion index, and L i an aggregae leiure index a period. Given an iniial are 0 for =,,, e conumer' budge conrain (7) ow a e um of good purcaed, c, valued a eir repecive price, p canno exceed a, oal income in period i. Oer noaion n concerning ecor a period are: p ourly wage, d dividend paid per are eld, q are price per uni, are olding a e beginning of, and + are purcaed for period +. Te aggregae conumpion index a a Cobb-Dougla form: C ( c ) ξ = (8) = were ξ i aggregaion weig. Furer, e repreenaive conumer i endowed wi one uni of ime in eac period and e aggregae leiure index ake e following form: L = = n. (9) Ta i, labor our are perfec ubiue for e conumer/worker, implying a e worker would devoe all ime o e ecor paying e ige wage. Hence, a e margin, all ecor pay e ame ourly wage Compeiive Equilibrium Te compeiive equilibrium coni of vecor of exogenou produciviy ock { ε }, = 0 price vecor {,, n p π p }, and quaniy vecor { k, n,, c, i, y } = uc a = 0 0. produciviy level { A } = 0 follow eir law of moion given by (2) ubjec o ock { } ; ε = 0 6

8 2. firm maximize preen dicouned value of dividend { d } = 0 ubjec o e ecoral producion ecnology () and e ecoral law of moion of capial accumulaion (4): E a d 0 δ = 0 P P n were d = p y p n πη( i ) P, π p = I B x x and P p = B x x 3. conumer maximize lifeime uiliy (6) ubjec o: n pc = [ p n + r k πη ( i = = a )] were e wage rae n p = αpy / n and e capial renal rae r βp y / = k ; 4. price clear labor marke and good marke: n β p y = χ a = +, +, = =. y c i m Te compeiive equilibrium in e wo-ecor (nondurable and durable) model of Hornein and Pracnik (997) can be obained from e above definiion by impoing e appropriae rericion a elaboraed in e previou ecion. Excep for a pecial cae of e parameer e, analyical oluion are no poible. An approximae oluion i compued by log-linearizing all equilibrium equaion wi a fir-order Taylor erie expanion around e model' eady ae Calibraion A for e calibraion of e model parameer, e level of ecoral diaggregaion i e o = 36, following e ecoral definiion ued by Jorgenon e al. (987) wic a a 7

9 mixure of - and 2-digi SIC indurie. Te producion ecnology parameer, α, β, and γ are e repecively a e ime-erie average of co are for capial, labor, and inermediae inpu for 36 ecor uing annual daa from 948 o 985 (Jorgenon e al., 987) by dividing e co of inpu by e value of oupu bo evaluaed a producer price. Te mean value of α acro ecor i 0.6, e mean value of β i 0.32, and e mean value of γ i Te "ock" parameer, ρ and Ω, are alo conruced uing e Jorgenon daa e. We conider e model economy were e produciviy ock are no independen acro ecor: a i, off-diagonal elemen from e eimaed variance-covariance marix of ecoral produciviy reidual are no aumed o be zero. Te ecoral depreciaion rae of capial ock, µ, are oe ued in Jorgenon e al. (987). Te ime period conidered i e quarer year. Following e oer buine cycle model, e dicoun facor, δ, i e o be (.03) 0.25 implying an annual dicoun rae of 3%. Te parameer χ i e o a oal our worked in eady ae repreen one-ird of e worker' oal ime endowmen. Te are parameer ξ in e aggregae conumpion index i obained from e nominal conumpion expendiure are of ecor in oal conumpion, ξ = p c / p c, uing conumpion daa from e Naional Income and Produc Accoun. Daa for e invemen-ue marix Γ I and e inermediae inpu-ue marix Γ m are baed on e 977 capial flow able decribed in Silverein (985) and e 977 deailed inermediae inpu-ue able, repecively. Te capial-ue and inermediae inpu-ue able are convered repecively o Γ and Γ by properly aggregaing o 36 ecor and I en dividing column by eir um. Te are parameer γ i obained from γ afer being divided acro all ineracing ecor uing e fracion a e purcae from ee ecor repreen ou of oal inermediae purcae by ecor. m 3. RESULTS Te imulaion reul are preened in Table. Te econd column repor e buine cycle comovemen of ecoral employmen in e US, followed by eir counerpar in e model economy. Te comovemen i meaured imply by calculaing correlaion coefficien beween e buine cycle componen of (quarerly) our worked in a given ecor and e buine cycle componen of oal our worked (quarerly). Te our worked in e US are baed on e eablimen urvey daa available in e DRI Economic daabae (formerly CITIBASE) covering from 964 o Te correlaion coefficien in e model economy are average aiic over 00 imulaed economie of leng 48 quarer. Bo acual and imulaed our are HP (Hodrick-Preco) filered before ey are ued o eimae correlaion coefficien. 8

10 Te ecoral diaggregaion level in e DRI daabae a ome minor difference from Horva (2000). For example, e DRI daabae doe no cover agriculure and ave e mining ecor broadly defined including meal, nonmeallic, and coal mining. For oe ecor woe definiion do no conform o Horva (2000), e eimae of e buine cycle comovemen are a follow: ranporaion and public uiliie (0.82), woleale rade (0.87), reail rade (0.86), and ervice (0.67). In order o compare wi e woecor comovemen reul in Hornein and Pracnik (997), e diaggregaed ecor are grouped ino e nondurable and durable good producing ecor following Hornein and Pracnik (997) definiion of ee wo ecor. Noice a ere i ubanial buine cycle comovemen in e daa. Only wo relaively mall ecor (obacco manufacure and peroleum & coal produc) exibi lile endency o move up and down wi general economic condiion over e buine cycle. A repored in e ird column ("Indiviible") in Table, e model imulaion imply rong ecoral employmen comovemen over e buine cycle. Wi e indiviiblelabor pecificaion of preference given by (6), ere i no "leiure mooing" in e ene a conumer do no care abou e variabiliy of leiure, and e buine cycle comovemen in employmen i aribued o e inerecoral linkage due o e ue of a ecor' (nondurable or durable) oupu a inermediae inpu and/or capial inpu in e producion of nondurable or durable. Ti can be verified from e following equaion wic deermine a ecor ' employmen in equilibrium: n β p y = were y = c + i, + m, χ a. (0) = = Noice a, for given β (0, ) and χ > 0, ecoral employmen n depend largely on i oupu y wic can be ued a inermediae inpu in e producion ecor m =,, or invemen good buil ino e capial ock of e ecor i =,, or final conumpion good c. A e diaggregaed level of 36 indurial ecor, for example, bo e inermediae inpu-ue and e capial-ue marice imply ufficien inerecoral linkage o explain e ecoral employmen comovemen over e buine cycle. Le I denoe e proporion of ecor ' oupu a i eier ued a inermediae inpu for producion or buil ino capial ock. Ten, from e good-marke clearing condiion for ecoral oupu, I i, m = =, c = + = y y 9

11 were c ξ a =. p In e ird column of Table, e ecoral average of ee number over 00 imulaion are repored in e parenee nex o e correponding ecoral employmen comovemen. Ti i a generalizaion of Criiano and Fier (998)' wo-ecor (conumpion and invemen) model were indiviible labor implie a conan employmen in e conumpion ecor. Ti i mainly becaue ey do no conider an inermediae inpu cannel: a i, oupu from e conumpion ecor i no ued a inermediae inpu for e producion in e invemen ecor, and ence "oupu" and "conumpion" in e conumpion ecor become idenical. Ti implie a, in equaion (0), p y = pc = ξ a in e conumpion ecor, yielding a conan employmen. Criiano and Fier (998) en ave o rely on limied labor mobiliy and abi perience for employmen comovemen. According o equaion (0), wen all e poible inermediae good cannel are conidered, a conan employmen wi indiviible labor would be raer an excepion in e ene a i occur only o a ecor woe oupu i never ued a inermediae good. Hence, wiou leiure mooing on e par of conumer, e inerecoral linkage (a manifeed by e inermediae inpuue and e capial-ue able) can accoun for e ecoral employmen comovemen over e buine cycle wiou relying on addiional rericion uc a limied labor mobiliy and abi perience. Criiano and Fizgerald (998) alo argue again e inermediae inpu cannel by noing rong buine cycle comovemen in ubecor of e nondurable-good ecor, depie e wide variaion in e reng of eac nondurable ubecor' inerecoral linkage (including zero) wi e invemen ecor. Te reng of e inermediae inpu cannel i meaured a e fracion of a nondurable ecor' gro oupu wic i allocaed o inermediae good en direcly or indirecly for e producion of final invemen good. However, e inerecoral linkage a conidered ere are muc broader in e ene a e model a in Horva (2000) allow for e poenial ue of a ecor' (nondurable or durable) oupu a inermediae inpu and/or capial inpu in e producion of nondurable or durable (including final invemen good). Te implied reng of inerecoral linkage are erefore muc larger an oe in Criiano and Fizgerald (998). Furer, a repored in column 6 of Table, e inerecoral linkage are overall conien wi e invemen comovemen acro ecor, aloug i ize i ill below wa i oberved in e US daa. 0

12 3.. On e role of indiviible labor Tee finding are qualiaively imilar o oe in Hornein and Pracnik (997). Tey examine a wo-ecor (nondurable/conumpion good and durable/invemen good) model wi indiviible labor were ome of e oupu of e conumpion-good ecor i ued a inermediae inpu in e producion of invemen good. In a boom, for example, e oupu in e conumpion ecor increae wi e increaed need for e oupu of e conumpion good ecor for ue in e invemen good ecor. However, in e conex of a dynamic ocaic general equilibrium model, e ecoral comovemen in employmen depend crucially on e pecificaion of preference over leiure. For e uiliy funcion wi diviible labor uc a U( C, L) = uc ( ) + vl ( ) were bo u( ) and v( ) are increaing and ricly concave, e conumer' ineremporal conumpion coice i deermined by e following fir-order condiion: u ( C )/ P = δ E R u + ( C+ )/ P + d+ + q+ were R + q n Subiuing v ( L)/ p = u ( C)/ P implied by e inraemporal conumpion-leiure coice, e above equaion can be rewrien a: n p v ( L) = δ E R v + ( L ) n + p + Ti implie ineremporal leiure mooing in e ene a conumer prefer a le variable leiure. However, wi indiviible labor or v ( L) = v ( L + ) equal o ome conan, e above equaion implie a conumer cooe leiure over ime depending on e ineremporal price of curren leiure wiou caring abou e variabiliy of leiure over ime. For example, e uiliy funcion of e form U( C, L) = logc + χ log( L) yield e following equilibrium condiion for e ecoral employmen: n β py = L were χ a L = n. () =

13 Noice a, in e preence of "leiure mooing", a given ecor' labor our are negaively relaed o our worked in e oer ecor. For an indurial ecor aving relaively weak linkage o e oer ecor, i inerecoral linkage are more likely o be dominaed by e "leiure-mooing" effec, yielding a low or even a negaive comovemen in employmen over e buine cycle. For example, a illuraed in e four column ("Diviible") in Table, a verion of e model wi diviible labor implie ome negaive buine cycle comovemen a well a poiive one. Te inermediae inpu-ue and e capial-ue able indicae a e negaive ecoral comovemen occur o oe ecor aving many zero elemen in e inermediae inpu-ue and capial-ue marice, meaning a eir inpu in e producion of e oer ecor are rivial Low ubiuabiliy of labor upply How can a diviible-labor model reconcile e ecoral employmen comovemen? Referring o e empirical udie in labor economic wic find a relaively low wage elaiciy of labor upply (e.g. Alonji (982) and Aenfeler and Alonji (980)) and perien wage difference acro ecor, we imulae e model economy were elaiciy of ubiuion of labor upply i relaively low acro ecor. Ti i a way o capure perien wage difference in e repreenaive agen framework. Te form of aggregae leiure index L in e preference i now generalized o allow for le-anperfec ubiuabiliy of labor our acro ecor: L τ τ + τ + τ = ( n ), τ > 0 (2) = A τ, labor our become perfec ubiue for e conumer/worker a in Hornein and Pracnik (997), implying a e worker would devoe all ime o e ecor paying e ige wage. Hence, a e margin, all ecor pay e ame ourly wage. For τ <, our worked are no perfec ubiue for e worker. Te worker a a preference for diveriy of labor, and ence would prefer working a poiive number of our in eac ecor even wen e wage are differen among ecor. Now, ecoral our worked are deermined by e following equilibrium condiion: τ + τ τ β py n = L( L) χ a. (3) 2

14 Noing e ypical finding in labor economic a wage elaiciy of labor upply i relaively low, Horva(2000) e τ = o repreen e worker' relucance o ubiue labor our acro ecor. A in e previou cae of perfecly ubiuable labor our acro ecor, e parameer χ i e o a oal our worked in eady ae repreen one-ird of e worker' oal ime endowmen. For example, τ = implie χ = 3.4. Te la wo column in Table illurae a a low elaiciy of ubiuion of labor acro ecor (e.g. τ = ), implying e low wage elaiciy of labor upply, can generae e rong buine cycle comovemen of ecoral our worked. Terefore, in e preence of leiure mooing, e inermediae cannel alone i no ufficien o generae e rong buine cycle comovemen acro ecor: i furer require ome form of worker' relucance o ubiue labor our acro ecor. 4. CONCLUDING REARKS We ave udied a muliecor dynamic ocaic general equilibrium model calibraed o e 2-digi SIC level inermediae inpu-ue and capial-ue able o inveigae e imporance of e inermediae inpu cannel in explaining e ecoral employmen comovemen over e buine cycle. In general, e buine cycle comovemen in employmen depend on e pecificaion of preference a well a ecnology wi poenial inerecoral linkage. Wi indiviible labor or no leiure mooing on e par of conumer, e inerecoral linkage a a diaggregaed level are ufficien o generae e rong buine cycle comovemen acro ecor. Wi diviible labor, owever, leiure-mooing effec can dominae a ecor' inerecoral linkage, implying a negaive comovemen. I furer require ome form of worker' relucance o ubiue labor our acro ecor. Referring o ome micro-level udie on e low wage elaiciy of labor upply, a low ubiuion of labor our i own o generae e rong buine cycle comovemen in ecoral our worked. 5. REFERENCES Alonji, J.G., Te ineremporal ubiuion model of labor marke flucuaion: an empirical analyi, Review of Economic Sudie, 49: , 982. Aenfeler, O. and J.G. Alonji, Wage movemen and e labor marke equilibrium ypoei, Economerica, 47, , 980. Boldrin,., L.J. Criiano, and J.D.. Fier, Habi perience, ae reurn and e buine cycle, American Economic Review, 9(), 49-66, 200. Criiano, L.J. and J.D.. Fier, Sock marke and invemen good price: implicaion for macroeconomic, working paper, Federal Reerve Bank of Cicago, 998. Criiano, L.J. and T.J. Fizgerald, Te buine cycle: i' ill a puzzle, Economic Perpecive, Federal Reerve Bank of Cicago,

15 Horva,.T.K., Secoral ock and aggregae flucuaion, Journal of oneary Economic, 45, 69-06, Horva,.T.K., Cyclicaliy and ecoral linkage: aggregae flucuaion from independen ecoral ock, Review of Economic Dynamic,, , 998. Hornein, A. and J. Pracnik, Inermediae inpu and ecoral comovemen in e buine cycle, Journal of oneary Economic, 40: , 997. Huffman, G. and. Wynne, Te role of inraemporal adjumen co in a muliecor economy, Journal of oneary Economic, 43, , 999. Jorgenon, D.G., F.. Gollop, and B. Fraumeni, Produciviy and US Economic Grow, Harvard Univeriy Pre, Cambridge, 987. King, R.G., C.I. Ploer, and S. Rebelo, Producion, grow and buine cycle: I. e baic neoclaical model, Journal of oneary Economic, 2, 988. Kydland, F. and E.C. Preco, Time o build and aggregae flucuaion, Economerica, 50, , 982. Long, J. and C.I. Ploer, Real buine cycle, Journal of Poliical Economy, 9, 39-69, 983. Pelan, C. and A. Trejo, On e aggregae effec of ecoral reallocaion, manucrip, Norweern Univeriy, 996. Ramey, V. and. Sapiro, Diplaced capial, Naional Bureau of Economic Reearc Working Paper, No. 6775, 998. Silverein, G., New rucure and equipmen by uing indurie, 977, Survey of Curren Buine, 65, 26-35,

16 Table. Cro-ecoral buine cycle comovemen Secor Employmen Invemen US Daa Indiviible Diviible τ = Indiviible Diviible τ = Nondurable & Service Agriculural produc 0.94 (0.93) Agriculural ervice 0.75 (0.53) eal mining 0.74 (0.59) Coal mining 0.96 (0.63) Peroleum & naural ga 0.94 (0.87) Nonmeallic mining 0.54 (0.47) Conrucion (0.96) Food & kindred produc (0.4) Tobacco produc (0.9) Texile mill produc (0.85) Apparel (0.26) Paper (0.72) Prining & publiing (0.55) Cemical (0.74) Peroleum & coal produc (0.62) Rubber & mic. plaic (0.69) Leaer (0.29) Tranporaion ervice 0.78 (0.67) Communicaion ervice 0.78 (0.56) Elecric uiliie 0.98 (0.0) Ga uiliie 0.98 (0.84) Woleale & reail rade 0.95 (0.27) Finance, inurance & real eae (0.96) Waer & aniary ervice 0.98 (0.57) Oer ervice 0.97 (0.45) Durable Lumber & wood (0.78) Furniure & fixure (0.05) Sone, clay, gla (0.76) Primary meal (0.94) Fabricaed meal (0.89) Non-elec. macinery (0.93) Elec. macinery (0.79) oor veicle (0.49) Tranporaion equipmen (0.63) Inrumen (0.64) ic. manufacuring (0.50)

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