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A Test Between Unemployment Theories Using Matching Data

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  • Coles, Melvyn G
  • Petrongolo, Barbara

Abstract

A new methodology is described which tests between various equilibrium theories of unemployment using matching data. The Paper shows how to correct econometrically for temporal aggregation effects, where the econometrician’s aim is to identify a matching process using data which is recorded monthly, and also shows how to identify different unemployment theories on the data. As implementing this test requires information on the inflow of new vacancies over time, this Paper uses employment agency data for the UK over the period 1985-99. Although the standard random matching approach provides a reasonably good fit, the empirical evidence provides greater support for ‘stock-flow’ matching. Estimates find that over this period, around 87% of newly laid-off workers are on the long-side of their markets and so match with the flow of new vacancies as those vacancies come onto the market. In particular, these workers’ experience average durations of unemployment which exceed 6 months and their matching rates are highly correlated with the inflow of new vacancies. This job queue interpretation of the matching data has important implications for government policy on long term unemployment and optimal UI. It also suggests that previous estimates of the so-called matching function have been misspecified, which potentially explains the large variation in results obtained in that literature.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3241.

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Date of creation: Mar 2002
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Handle: RePEc:cpr:ceprdp:3241

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Keywords: hypothesis testing; matching; unemployment;

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References

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  1. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
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  9. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
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  18. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April.
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  21. Ours, J. C. van & Burdett, K. & Coles, M., 1994. "Temporal Aggregation Bias in Stock-Flow Models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-153334, Tilburg University.
  22. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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Citations

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Cited by:
  1. Jekaterina Dmitrijeva, 2008. "Matching and Labour Market Efficiency across Space and through EU accession: Evidence from Latvia, Estonia and Slovenia," Documents de recherche 08-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  2. Borowczyk-Martins, Daniel & Jolivet, Grégory & Postel-Vinay, Fabien, 2011. "Accounting For Endogenous Search Behavior in Matching Function Estimation," CEPR Discussion Papers 8471, C.E.P.R. Discussion Papers.
  3. Chassamboulli, Andri, 2013. "Labor-market volatility in a matching model with worker heterogeneity and endogenous separations," Labour Economics, Elsevier, vol. 24(C), pages 217-229.
  4. Stephen R. G. Jones & W. Craig Riddell, 2006. "Unemployment and Nonemployment: Heterogeneities in Labor Market States," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 314-323, May.
  5. Robert Shimer, 2006. "Mismatch," Proceedings, Federal Reserve Bank of San Francisco.
  6. Aki Kangasharju & Jaakko Pehkonen & Sari Pekkala, 2005. "Returns to scale in a matching model: evidence from disaggregated panel data," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 115-118.
  7. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
  8. Iva Tomic, 2012. "The Efficiency of the Matching Process: Exploring the Impact of Regional Employment Offices in Croatia," Working Papers 1204, The Institute of Economics, Zagreb.
  9. Tomasz Jeruzalski & Joanna Tyrowicz, 2009. "(In)Efficiency of Matching - the Case of a Post-transition Economy," Working Papers 2009-10, Faculty of Economic Sciences, University of Warsaw.
  10. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, vol. 10, pages 284-316, 08.
  11. Sunde, Uwe, 2002. "Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies," IZA Discussion Papers 520, Institute for the Study of Labor (IZA).
  12. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  13. van Ommeren, Jos & Russo, Giovanni, 2009. "Firm Recruitment Behaviour: Sequential or Non-Sequential Search?," IZA Discussion Papers 4008, Institute for the Study of Labor (IZA).
  14. Jos van Ommeren & Giovanni Russo, 2004. "Sequential or Non-sequential Recruitment?," Tinbergen Institute Discussion Papers 04-109/3, Tinbergen Institute, revised 15 Sep 2008.

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