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Productivity and job flows: heterogeneity of new hires and continuing jobs in the business cycle

Juha Kilponen () and Juuso Vanhala ()

No 15/2009, Research Discussion Papers from Bank of Finland

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 numbers: E24, E32, J64

JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2009-05-08
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Published in Published in Scandinavian Journal of Economics, Volume 116, Issue 4:1068–1090, October 2014

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