Worker heterogeneity, the job-finding rate, and technical change

We examine the implications of changes in the skill distribution on the equilibrium matching process and the job finding rate, using a directed search approach. Worker abilities are selected from a distribution while firms face heterogeneous entry costs and direct their job offers to workers. We identify conditions under which technical progress increases or decreases the job finding rate, allowing for entry and the effects of technical changes on heterogeneity. We find that the effects of skill-neutral technical progress on job finding rates are unambiguously non-negative, but the effects of skill-biased changes depend on the elasticity of vacancy costs. However, both skill-neutral and skill-biased technical changes are Pareto improving, ex ante, if all agents are risk neutral. •Considers the effects of changes in the skill distribution on the job finding rate.•Uses directed search model.•Derives closed form solution for equilibrium matching function with heterogeneity.•Function has CRS and depends on underlying distribution of worker productivities.•Identifies when technological change increases or decreases the job finding rate.