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Creative Destruction with On-the-Job Search

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  • Jean-Baptiste Michau

Abstract

This paper is about the labour market consequences of creative destruction with on-the-job search. We consider a matching model in an economy with embodied technological progress and show that its dynamics are profoundly affected by allowing on-the-job search. We obtain that the elasticity of unemployment with respect to growth shrinks from 1.63 to 0.13. Moreover, the underlying transmission channels change as the flow of obsolete jobs practically disappears and is replaced by a flow of job-to-job transitions. These effects persist even if employed job seekers are significantly less efficient in the search process than the unemployed. Thus, we show that, rather than contributing to unemployment, creative destruction induces a direct reallocation of workers from low to high productivity jobs. These results could be strengthened by assuming that search efforts are unobservable by firms which induces more on-the-job search. However, the action of worker is no longer surplus maximizing and, hence, the worker's welfare is increasing in the cost of search which acts as a commitment device. Finally, we show that the model could be extended by allowing for variable search intensity.

Suggested Citation

  • Jean-Baptiste Michau, 2007. "Creative Destruction with On-the-Job Search," CEP Discussion Papers dp0835, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0835
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    Cited by:

    1. Jean-Baptiste Michau, 2013. "Creative Destruction with On-the-Job Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 691-707, October.
    2. Jean-Baptiste Michau, 2013. "Unemployment Insurance And Cultural Transmission: Theory And Application To European Unemployment," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1320-1347, December.
    3. Yang Shen, 2024. "Future jobs: analyzing the impact of artificial intelligence on employment and its mechanisms," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-33, April.
    4. Damir Stijepic, 2021. "Trends and cycles in U.S. job mobility," Manchester School, University of Manchester, vol. 89(2), pages 203-222, March.
    5. Jake Bradley & Axel Gottfries, 2022. "Labour market dynamics and growth," Discussion Papers 2022/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    6. Henry Hyatt & James Spletzer, 2013. "The recent decline in employment dynamics," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-21, December.
    7. Dinopoulos, Elias & Grieben, Wolf-Heimo & Şener, Fuat, 2023. "A Policy Conundrum: Schumpeterian Growth or Job Creation?," Economic Modelling, Elsevier, vol. 126(C).
    8. Basov, Suren & King, Ian & Uren, Lawrence, 2014. "Worker heterogeneity, the job-finding rate, and technical change," European Economic Review, Elsevier, vol. 70(C), pages 159-177.
    9. Yang Shen & Xiuwu Zhang, 2024. "The impact of artificial intelligence on employment: the role of virtual agglomeration," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-14, December.
    10. Niklas Engbom, 2018. "Firm and Worker Dynamics in an Aging Labor Market," 2018 Meeting Papers 1009, Society for Economic Dynamics.
    11. Miyamoto, Hiroaki & Takahashi, Yuya, 2011. "Productivity growth, on-the-job search, and unemployment," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 666-680.
    12. Niklas Engbom, 2019. "Firm and Worker Dynamics in an Aging Labor Market," Working Papers 756, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    commitment device; creative destruction; job flows; obsolescence; on-the-job search; search equilibrium; unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O39 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Other

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