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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. van den Berg, Gerard J & Gorter, Cees, 1997. "Job Search and Commuting Time," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 269-81, April.
  2. Antonio Ciccone & Robert E. Hall, 1995. "Productivity and the density of economic activity," Economics Working Papers 120, Department of Economics and Business, Universitat Pompeu Fabra.
  3. 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. Eckstein, Zvi & Wolpin, Kenneth I, 1995. "Duration to First Job and the Return to Schooling: Estimates from a Search-Matching Model," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 263-86, April.
  17. Alan Manning & Jonathan Thomas, 1997. "A simple test of the shirking model," LSE Research Online Documents on Economics 20300, London School of Economics and Political Science, LSE Library.
  18. Warren, Ronald Jr., 1996. "Returns to scale in a matching model of the labor market," Economics Letters, Elsevier, vol. 50(1), pages 135-142, January.
  19. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
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  21. Barron, John M, 1975. "Search in the Labor Market and the Duration of Unemployment: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 65(5), pages 934-42, December.
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