Abstract:In this article, we consider a new Keynesian dynamic stochastic general equilibrium model with heterogeneous skills and investigate employment dynamics in China's labor market. The Bayesian impulse response functions of technology shock shows that employment and the new hiring of high skill labor would increase when this shock hits the economy, but meanwhile, employment and the new hiring of high skill labor will decrease. The Bayesian impulse response functions of technology shock predicts that employment increase along with the positive monetary policy shock, but the increase of employment can attribute much more to the low skill labor. The Bayesian impulse response functions show that employment of different skills respond differently to the same exogenous shock, meaning that the model with heterogeneous skills may be more reasonable. Then, the result of Bayesian shocks decomposition argues that the employment of low skill labor shows much more volatile than the high skill labor.