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Labor Market Heterogeneity and the Aggregate Matching Function

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  • Regis Barnichon
  • Andrew Figura

Abstract

The matching function - a key building block in models of labor market frictions - implies that the job finding rate depends only on labor market tightness. We estimate such a matching function and …find that the relation, although remarkably stable over 1967-2007, broke down spectacularly after 2007. We argue that labor market heterogeneities are not fully captured by the standard matching function, but that a generalized matching function that explicitly takes into account worker heterogeneity and market segmentation is fully consistent with the behavior of the job finding rate. The standard matching function can break down when, as in the Great Recession, the average characteristics of the unemployed change too much, or when dispersion in labor market conditions - the extent to which some labor markets fare worse than others–increases too much.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 727.

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Date of creation: Oct 2013
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Handle: RePEc:bge:wpaper:727

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Keywords: job finding; aggregate; composition; dispersion;

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  1. Barbara Petrongolo, 1998. "Re-employment Probabilities and Returns to Matching," CEP Discussion Papers, Centre for Economic Performance, LSE dp0406, Centre for Economic Performance, LSE.
  2. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," NBER Working Papers 13290, National Bureau of Economic Research, Inc.
  3. Christian Merkl, Thijs van Rens, 2012. "Selective Hiring and Welfare Analysis in Labor Market Models," Kiel Working Papers 1752, Kiel Institute for the World Economy.
  4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  5. Katharine G. Abraham & Lawrence F. Katz, 1987. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," NBER Working Papers 1410, National Bureau of Economic Research, Inc.
  6. Carlos Carrillo-Tudela, 2012. "Unemployment and Endogenous Reallocation over the Business Cycle," 2012 Meeting Papers, Society for Economic Dynamics 1045, Society for Economic Dynamics.
  7. Regis Barnichon & Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010. "Which industries are shifting the Beveridge curve?," Working Paper Series, Federal Reserve Bank of San Francisco 2010-32, Federal Reserve Bank of San Francisco.
  8. Christopher J. Erceg & Andrew T. Levin, 2013. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," UTokyo Price Project Working Paper Series, University of Tokyo, Graduate School of Economics 009, University of Tokyo, Graduate School of Economics.
  9. Daniel Borowczyk-Martins & Gregory Jolivet & Fabien Postel-Vinay, 2013. "Accounting For Endogeneity in Matching Function Estimation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 440-451, July.
  10. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2013. "Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1123-1167.
  11. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  12. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0110, Centre for Economic Performance, LSE.
  13. Willem Van Zandweghe, 2012. "Interpreting the recent decline in labor force participation," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q I, pages 5-34.
  14. Salant, Stephen W, 1977. "Search Theory and Duration Data: A Theory of Sorts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(1), pages 39-57, February.
  15. Daniel Aaronson & Jonathan Davis & Luojia Hu, 2012. "Explaining the decline in the U.S. labor force participation rate," Chicago Fed Letter, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Mar.
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Cited by:
  1. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, Elsevier, vol. 62(C), pages 123-133.
  2. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo & Lawrence F. Katz, 2014. "Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Non-Participation," NBER Working Papers 20273, National Bureau of Economic Research, Inc.

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