Do sectoral shifts matter? The paradoxical case of cyclical employment fluctuations

abstract: this study analyzes the impact of intersectoral shifts on aggregate cyclical employment behavior in the post-world war ii united states. although services-producing industries have significantly lower cyclical employment fluctuations than do goods-producing industries, the large shifts from goods to services have not resulted in any discernable change in aggregate behavior. to explain this paradox of the seeming irrelevance of industrial composition, this paper analyzes the complex relationship between aggregate and industry fluctuations, demonstrating that previous work on the topic of aggregation has omitted an important component of the relationship. a decomposition of the change in aggregate behavior into all of its disaggregate components reveals that sectoral shifts would have reduced aggregate employment fluctuations, although for surprising reasons different from the simple story, had changes in other components not offset the compositional effect of the shifts.;