ABSTRACT
The strength of capitalist market economies is their ability to improve existing products and to create new products (Schumpeter’s ‘creative destruction’); this is the source of economic progress that brought about tremendous income growth. Creative destruction produces heterogeneity among firms and is a source of continuous frictions in the economy in general and in the labor market in particular. Labor markets need to adjust to changing skill requirements, shifting locations, etc. Well-functioning labor markets are a precondition for such a dynamic economic development and an understanding of adjustment processes in labor markets and their proper analysis is essential for economic theory and policy proposals.
