Productivity and Job Flows: Heterogeneity of New Hires and Continuing Jobs in the Business Cycle

The Scandinavian Journal of Economics, Vol. 116, Issue 4, pp. 1068-1090, 2014

Bank of Finland Research Discussion Paper No. 15/2009

ECB Working Paper No. 1080

50 Pages Posted: 6 Jul 2009 Last revised: 13 Oct 2014

See all articles by Juha Kilponen

Juha Kilponen

Bank of Finland - Research

Juuso Vanhala

Bank of Finland

Date Written: July 1, 2009

Abstract

This paper focuses on productivity dynamics of a firm-worker match as a potential explanation for the ‘unemployment volatility puzzle’. We let new matches and continuing jobs differ in terms of productivity level and sensitivity to aggregate productivity shocks. As a result, new matches have a higher destruction rate and lower, but more volatile, wages than old matches, as new hires receive technology associated with the latest vintage. In our model, an aggregate productivity shock generates a persistent productivity difference between the two types of matches, creating an incentive to open new productive vacancies and to destroy old matches that are temporarily less productive. The model produces a well behaved Beveridge curve, despite endogenous job destruction and more volatile vacancies and unemployment, without needing to rely on differing wage setting mechanisms for new and continuing jobs.

Keywords: matching, productivity shocks, new hires, continuing jobs, job flows, Beveridge curve, vintage structure

JEL Classification: E24, E32, J64

Suggested Citation

Kilponen, Juha and Vanhala, Juuso, Productivity and Job Flows: Heterogeneity of New Hires and Continuing Jobs in the Business Cycle (July 1, 2009). The Scandinavian Journal of Economics, Vol. 116, Issue 4, pp. 1068-1090, 2014 ; Bank of Finland Research Discussion Paper No. 15/2009; ECB Working Paper No. 1080. Available at SSRN: https://ssrn.com/abstract=1429313 or http://dx.doi.org/10.2139/ssrn.1429313

Juha Kilponen

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2847 (Phone)
+358 10 831 2294 (Fax)

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/kilponen_juha/

Juuso Vanhala (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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