The effects of sectoral shifts, measured by dispersion in the growth rates of employment or earning across industries or regions, on unemployment are tested in a specification controlling for the effects of other labor‐market variables and shifts in the demographic composition of the labor force. Interindustry and geographical shifts in labor demand have significant unemployment effects, with adult males the group most strongly affected. The estimated equations imply that most of the fluctuation in unemployment over the period 1956‐87 was been due to microeconomic causes rather than aggregate dem