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Scale Effects in Markets with Search

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  • Barbara Petrongolo
  • Christopher A. Pissarides

Abstract

Reduced-form tests of scale effects in markets with search, run when aggregate matching functions are estimated, may miss important scale effects at the micro level, because of the reactions of job searchers. A semi-structural model is developed and estimated on a British sample, testing for scale effects on the offer arrival rate and the wage offer distribution. When contrasting London with the rest of the country we find scale effects in wage offers. But the larger market delivers higher realized wages and not more matches, because the scale effects on matches are offset by the response of reservation wages.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0571.

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Date of creation: Jun 2003
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Handle: RePEc:cep:cepdps:dp0571

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Job search; economies of scale; matching; aggregate matching functions; wage offer distribution; unemployment;

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References

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  1. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers, C.E.P.R. Discussion Papers 966, C.E.P.R. Discussion Papers.
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  8. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2409, C.E.P.R. Discussion Papers.
  9. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 268, Massachusetts Institute of Technology (MIT), Department of Economics.
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  16. Eckstein, Z. & Wolpin, K.I., 1992. "Duration to First Job and the Return to Schooling : Estimates form a Search -Matching Model," Papers, Tel Aviv 13-92, Tel Aviv.
  17. Alan Manning & Jonathan Thomas, 1997. "A simple test of the shirking model," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20300, London School of Economics and Political Science, LSE Library.
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