Job Upgrading, Job Creation and Job Destruction

This Paper proposes and develops a dynamic matching model à la Mortensen and Pissarides (1994, 1999a, 1999b) where firms respond to idiosyncratic and aggregate shocks by upgrading, creating, and destroying jobs. By allowing firms to invest in the productivity of existing jobs, the Paper sheds light on: i) the impact of labour market policy on the economy’s rates of job upgrading, job creation and job destruction; ii) the impact of labour market policy on the response of the job upgrading rate to aggregate shocks and on the cyclicality of the job upgrading rate; and iii) the impact of training policy on labour market equilibrium outcomes.