This study tests Okun's upgrading/downgrading hypothesis: in recessions, workers downgrade into inferior, low-paying, "casual sector" jobs; in recoveries, workers upgrade into high-paying, "career-sector" jobs. Okun's hypothesis is consistent with dual labor market and efficiency wage theory in which the price of labor of a given quality varies across jobs. Good jobs, which pay high wages, are in short supply. Consequently, many workers are involuntarily underemployed in low-paying jobs.
In addition to the main upgrading/downgrading hypothesis, the following related hypotheses are tested: (1) Disadvantaged groups--women, youth, and nonwhites--are disproportionately represented among downgraders and upgraders so that their share of employment in career sector jobs is procyclical. (2) Downgraders suffer large wage rate declines; upgraders enjoy large wage rate increases. (3) The wage rate is cyclically more stable in the career sector than in the casual sector.
Jobs are classified on a continuum on the basis of employee tenure. Workers "vote with their feet" and stay longer in jobs that pay more.
The hypotheses are tested with a series of linked March Current Population Surveys, yielding a large sample of persons with two-year longitudinal work histories at different portions of the business cycle. This enables job mobility to be actually observed, rather than simply inferred from a series of cross-section data.
The hypotheses are confirmed. Interesting findings include the extremely high incidence of cyclical upgrading/downgrading among youth, and surprising low incidence among nonwhites. Additionally, there is evidence of a secular downgrading trend for white prime-age males and for nonwhites.
