Abstract

Temporary booms affect sectors as varied as commodities, construction, and tech. I study how uncertainty about the length of the boom shapes labor mobility across sectors during the boom phase. I build a model of sector-specific on-the-job human capital accumulation and show that workers can exhibit risk-loving attitudes towards the boom’s duration. These arise because there is an option value attached to working in booming sectors: if the boom is short the worker can switch out, while payoffs are high if the boom is long because of human capital accumulation. When risk-loving attitudes are strong for the marginal workers switching into the booming sector, labor supply decreases in the economy without uncertainty. Then, I focus on the effects of the boom in the prices of mineral products in 2011-2018 on Australia. I estimate the model using financial data and novel administrative micro-data. I use the quantified model to study a counterfactual perfect foresight economy in which the mining boom was temporary and duration known. I find that the share of employment in mining would have increased from 3.7% to 4.4% and the relative wage in the sector would have been substantially lower, indicating that duration uncertainty deterred labor supply and contributed to the rise in wage inequality following the shock.

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