JOB TURNOVER AND POLICY EVALUATION - A GENERAL EQUILIBRIUM-ANALYSIS

Recent empirical work indicates that job creation and destruction rate s are large, implying significant amounts of job reallocation across f irms. This paper builds a general equilibrium model of this reallocati on process, calibrates it using data on firm-level dynamics, and evalu ates the aggregate implications of policies that interfere with this p rocess. We find that a tax on job destruction at the firm level has a sizable negative impact on total employment: a tax equal to 1 year's w ages reduces employment by roughly 2.5 percent. More striking, however , are the welfare consequences: the cost in terms of consumption of th is same tax is greater than 2 percent. The mechanism through which thi s welfare loss arises is apparently a decrease in average productivity , since this policy results in a decrease in average productivity of o ver 2 percent.