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BPEA Article

Worker Upgrading and the Business Cycle


CYCLICAL SWINGS in real economic activity are accompanied by large scale adjustments in the labor market. Arthur Okun has noted that the industries most sensitive to the business cycle pay high wages and employ primarily men aged 25 and older, the demographic group with the most stable attachment to the labor force. Thus when output and employment expand, workers are recruited from other industries and from the demographic groups that usually have lower earnings—that is, the young, blacks, and women. This recruitment process implies both income gains for people who move into the cyclically sensitive industries and a bonus in macroeconomic productivity because these industries are characterized by real output per manhour that is higher than the average.


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