The Allocation of Talent over the Business Cycle and its Effect on Sectoral Productivity
It is well documented that graduates enter different occupations in recessions than in booms. In this article, we examine the impact of this reallocation for long-term productivity and output across sectors. We develop a model in which talent flows to stable sectors in recessions and to cyclical sectors in booms. We find evidence for the predicted change in productivity caused by the business cycle in a setting where output can be readily measured: economists starting or graduating from their PhD in a recession are significantly more productive over the long term than economists starting or graduating in a boom.
6 May 2012 Paper Number CEPDP1143
This CEP discussion paper is published under the centre's Labour markets programme.