Labor Turnover and the Dynamics of Labor Productivity

This paper develops a general equilibrium labor search model to match the dynamic behavior of job creation, job destruction, employment, and labor productivity. Persistence in idiosyncratic productivity levels and endogenous job destruction generate a changing distribution of labor productivity across jobs that has implications for the evolution of aggregate labor productivity. Realistic cyclical dynamics are produced, with labor productivity leading the cycle and employment lagging the cycle. The results show that a delay in some job destruction in response to a negative shock is essential to fitting dynamic patterns in the data. The paper also implements a computationally feasible method for solving models with persistent idiosyncratic shocks without requiring shocks to be limited to transitions on a coarse state space