Implications of General and Specific Productivity Growth in a Matching Model

In this paper, I explore the implications of incorporating long-run productivity growth into a labor market matching model. I allow productivity growth to be of a general or match-specific nature, and consider an environment in which risk-averse workers are matched with firms and engage in long-term employment contracts, to which the workers cannot commit. The environment gives rise to two new channels through which faster growth may reduce unemployment: intertemporal consumption smoothing and specific productivity growth. A quantitative analysis of the model shows that these two channels are able to generate a negative impact of growth on unemployment comparable to empirical estimates, in contrast to the traditional ”capitalization effect”. The analysis also suggests that while a greater specificity of productivity growth tends to decrease the unemployment rate and lengthen workers ’ tenure, it makes these variables more responsive to growth and job destruction rates. These results may potentially explain certain labor market differences among the U.S., Europe and Japan. ∗I am deeply indebted to my advisor Andy Atkeson for his continuous guidance and support. I am grateful to Roger Farmer and Christian Hellwig for their invaluable suggestions and encouragement. I have also benefited from the insightful remarks of Ariel Burstein, Matthias Doepke, Hanno Lustig, Le