Specic Capital and Vintage E¤ects on the Dynamics of Unemployment and Vacancies

Shimer (2005) argues that, in a reasonably calibrated Mortensen and Pissarides matching model, shocks to average labor productivity can account for only a small portion of the ‡uctuations in unemployment and vacancies. In this paper, I argue that, if vintage speci…c shocks rather than aggregate productivity shocks are the driving force of ‡uctuations, the model does a better job to account for the data. I add heterogeneity in jobs (matches) with respect to the time the job is created in the form of di¤erent embodied technology levels. I also introduce speci…c capital which, once adapted for a match, has less value in another match. In the quantitative analysis, I show that shocks to di¤erent vintages of entrants are able to account for ‡uctuations in unemployment and vacancies and that, in this environment, speci…c capital is important to decrease the volatility in the destruction rate of existing matches. JEL Classi…cation: E24, E32, J41, J63, J64