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Matching Inefficiencies, Regional Disparities, and Unemployment

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  • Sanna-Mari Hynninen
  • Aki Kangasharju
  • Jaakko Pehkonen

Abstract

In this paper we apply a stochastic frontier approach to examine how matching inefficiencies and regional disparities in structural factors contribute to regional and aggregate unemployment. Our results suggest that there would be a substantial decline in aggregate unemployment if (i) all local labour offices operated with full efficiency or (ii) they shared the same structure of job seekers and vacant jobs as the most favourable office. In the former case an increase in hirings would lower the average unemployment rate by 2.4 percentage points. In the latter case the decrease would be 1.4 percentage points. Further, we find that fixed effects are positively correlated with both a more favourable structure and higher efficiency. This suggests that the fixed effects may capture some part of time-invariant features in the structure and inefficiency. Thus, the role of structural factors and inefficiency in regional unemployment disparities may be higher than estimated. Copyright 2009 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by CEIS in its journal LABOUR.

Volume (Year): 23 (2009)
Issue (Month): 3 (09)
Pages: 481-506

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Handle: RePEc:bla:labour:v:23:y:2009:i:3:p:481-506

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Cited by:
  1. Torben Dall Schmidt & Aki Kangasharju & Daniel Rauhut, 2011. "Population Changes and Regional Economic Growth in the Nordic Countries 1994-2006," ERSA conference papers ersa10p922, European Regional Science Association.
  2. Ossi Korkeamäki & Tomi Kyyrä, 2010. "Institutional rules, labour demand and retirement through disability programme participation," Working Papers 16, Government Institute for Economic Research Finland (VATT).
  3. Ossi Korkeamäki, 2011. "The Finnish payroll tax cut experiment revisited," Working Papers 22, Government Institute for Economic Research Finland (VATT).

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