Accounting for the Causes and Consequences of Industrial Employment Shift

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  • RCRobert M. Costrell
    Robert M. Costrell
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Abstract
This paper analyzes the 1981‐87 employment shifts away from high‐wage industries, using a shift‐share framework, coupled with a two‐sector general equilibrium model. I find that (1) the shift‐share drag on average pay growth was unprecedented in the postwar period, on the order of 1/4‐1/3 percent per year, for hourly compensation; and (2) output shifts, including the trade deficit, were a more important cause of the employment shifts than were rapid productivity growth in manufacturing and other contracting industries. As a result, the shift‐share drag on average pay growth should be interpreted primarily as coming out of aggregate productivity growth, rather than as a redistributional phenomenon.

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