Aggregate Shocks vs Reallocation Shocks: an Appraisal of the Applied Literature

Abstract

This paper critically appraises the different approaches that have characterized the literature on the macroeconomic effects of job reallocations from Lilien's seminal work to recent developments rooted in structural general equilibrium models, nonlinear econometric techniques and the concepts of job creation and destruction. Despite a flourishing of empirical analysis no unifying theoretical framework has obtained consensus in the scientific debate. We face a corpus of research which is heterogeneous in variables' selection and experimental design. This widespread heterogeneity makes the evaluation of results a daunting task. Reliability of outcomes becomes almost impossible to assess when, even within models of the same generation, the lack of a rigorous theoretical background hinders well defined experimental design and makes comparisons difficult. The strong pace at which the empirical literature on the macroeconomic effects of job reallocations has been growing in recent years suggests that a general assessment of the state of the art is valuable and maybe indispensable. As a guiding principle for our excursion we track down the methodological development of the proposed solutions to the crucial problem of observational equivalence. We do not linger on specific econometric methods nor on strictly theoretical issues not relevant to our main purpose. We draw the conclusion that the asymmetric and non-directional nature of allocative shocks, which holds the key to the solution of the problem, is better captured by multivariate, non-linear, dynamic econometric models and numerical simulation techniques. Davis and Haltiwanger's perspective on job creation and destruction seems to us of paramount importance for future research because of its potential to encompass a wealth of micro-level data sets within a rigorous analytical framework.

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