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Scale Effects in Markets with Search

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  • Barbara Petrongolo
  • Christopher Pissarides

Abstract

Estimates of aggregate matching functions may miss important scale effects in frictional labour markets because of the reactions of job seekers to scale. We estimate a semi-structural model of search and matching on a British sample of unemployed people, testing for scale effects on the probability of receiving an offer and on the distribution of wage offers. We find them only in wage offers but we also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches. So aggregate matching functions should be unaffected by scale but wage equations should be showing them. Copyright 2006 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 508 (01)
Pages: 21-44

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:21-44

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  1. Alan Manning & J Thomas, 1997. "A Simple Test of the Shirking Model," CEP Discussion Papers dp0374, Centre for Economic Performance, LSE.
  2. Bloemen, H.G. & Stancanelli, E.G.F., 1997. "Individual Wealth, Reservation Wages and Transitions into Employment," Discussion Paper 1997-02, Tilburg University, Center for Economic Research.
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  16. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers 966, C.E.P.R. Discussion Papers.
  17. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
  18. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
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