How does wage elasticity of labor demand influence sectoral shifts in an economy during a recession?

Wage elasticity of labor demand refers to how sensitive the demand for workers is to changes in wages. During a recession, if the wage elasticity is high, employers may quickly reduce their workforce or cut hours when wages rise, as they find it easier to replace workers or automate tasks. This can lead to sectoral shifts, where some industries, like hospitality or retail, may see larger job losses compared to sectors like healthcare or technology, which may be less sensitive to wage changes. For example, if wages in the retail sector increase, businesses might hire fewer employees or even lay off current workers, pushing job seekers into more stable sectors. Understanding this concept helps us see why some industries struggle more during economic downturns and how workers may need to adapt to find new opportunities.