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
50 Pages Posted: 6 Jul 2009 Last revised: 13 Oct 2014
Date Written: July 1, 2009
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: Suggested Citation