PRODUCTIVITY AND JOB FLOWS HETEROGENEITY OF NEW HIRES AND CONTINUING JOBSIN THE BUSINESS CYCLE

This paper focuses on tenure driven productivity dynamics of a firm-worker match asa potential explanation of "unemployment volatility puzzle". We let new matches andcontinuing jobs differ by their productivity levels and by their sensitivity to aggregateproductivity shocks. As a result, new matches have a higher destruction rate andlower, but more volatile, wages than old matches, as new hires receive technologyassociated with the latest vintage. Our contribution is to produce model drivenstickiness of old jobs’ wages which does not rely on ad hoc assumptions on wagerigidity. In our model, an aggregate productivity shock generates a persistentproductivity difference between the two types of matches, creating an incentive toopen new productive vacancies and to destroy...