Job Destruction and Propagation of Shocks

We develop and quantitatively implement a dynamic general equilibrium model with labor market matching and endogenous job destruction. The model produces a close match with data on job creation and destruction. Cyclical fluctuations in the job destruction rate serve to magnify the effects of productivity shocks as output, as well as making the effects much more persistent. Interactions between household savings decisions and separation decisions in employment relationships play a key role in propagating shocks