Jacks of All Trades and Masters of One: Declining Search Frictions and Unequal Growth

Abstract

Declining search frictions generate productivity growth by allowing workers to find jobs for which they are better suited. For “jacks of all trades”—workers whose productivity is similar across different jobs in their labor market—declining search frictions lead to minimal growth. For “masters of one trade”—workers whose productivity varies a great deal across different jobs in their labor market—declining search frictions lead to fast growth. A rudimentary calibration suggests that differential returns to declining search frictions may account for a non-negligible fraction of the wage growth differential between routine and nonroutine workers. (JEL J24, J31, J63, J64, O33)

Optimal Product Design: Implications for Competition and Growth Under Declining Search Frictions

“…In menu cost models, firms adjust their nominal price infrequently to keep up with a declining value of money. In my model, firms adjust their variety infrequently to keep up with declining search frictions.3 InMartellini and Menzio (2021), we show that declining search frictions have a different effect on the growth rate of productivity and wages for routine workers (whose productivity is similar across jobs) and nonroutine workers (whose productivity is different across jobs).…”

“…33 In Martellini and Menzio (2021), we show that declining search frictions have a different effect on the growth rate of productivity and wages for routine workers (whose productivity is similar across jobs) and nonroutine workers (whose productivity is different across jobs). …”

“…2 The paper is part of an ongoing research project on "Stiglerian Growth," the ideawhich dates back to Stigler's original papers on search frictions (Stigler (1961(Stigler ( , 1962)that information frictions cause misallocation, and hence, technological advances that alleviate information frictions lead to economic growth. In Martellini and Menzio (2020), we consider the effect of declining search frictions in the labor market. We show that, if and only if the quality of a firm-worker match is drawn from a Pareto distribution, declining search frictions are consistent with the stationarity of unemployment and vacancies and with the stability of the Beveridge curve that are observed in the data.…”