Sectoral Shift, Job Mobility and Wage Inequality

In the last few decades there is a clear shift of the U.S. economy from the non-service sector to the service sector. We document the patterns of changes in the employment share in services, the transition rates of workers between the two sectors and between different employment status, the relative wage income between the sectors, and wage inequality. To understand these changes jointly, we construct a dynamic equilibrium model of a two-sector economy where workers search both on the job and in unemployment. Assuming that the value-added per labor has been increasing in services relative to non-services, we estimate the model and make inferences on how the sectoral shift interacts with skill accumulation and labor market frictions.