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Scale effects in markets with search

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  • Barbara Petrongolo
  • Christopher Pissarides

Abstract

Reduced-form tests of scale effects in markets with search, based on aggregate matching functions, may miss important scale effects at the micro level, because of the reactions of job searchers. We estimate a semi-structural model on a British sample of unemployed people, testing for scale effects on the offer arrival rate and the wage offer distribution. We find scale effects in wage offers but not in offer arrival rates. We also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches, so aggregate matching functions are unaffected by scale.

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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 2467.

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Date of creation: Jan 2006
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Publication status: Published in Economic Journal, January, 2006, 116(508), pp. 21-44. ISSN: 0013-0133
Handle: RePEc:ehl:lserod:2467

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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, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  2. Stancanelli, E.G.F. & Bloemen, H.G., 1997. "Individual wealth, reservation wages and transitions into employment," Discussion Paper 9702, Tilburg University, Center for Economic Research.
  3. 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.
  4. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December.
  5. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
  6. Berg, G.J. van den & Gorter, C., 1996. "Job search and commuting time," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  7. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  8. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  9. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  10. Eckstein, Z. & Wolpin, K.I., 1992. "Duration to First Job and the Return to Schooling : Estimates form a Search -Matching Model," Papers 13-92, Tel Aviv.
  11. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
  12. Christensen, Bent Jesper & Kiefer, Nicholas M, 1994. "Measurement Error in the Prototypal Job-Search Model," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 618-39, October.
  13. 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.
  14. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
  15. 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.
  16. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  17. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  18. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  19. Narendranathan, W. & Stewart, M.B., 1989. "Modelling The Probability Of Leaving Unemployment: Competing Risks Models With Flexible Baseline Hazards," The Warwick Economics Research Paper Series (TWERPS) 331, University of Warwick, Department of Economics.
  20. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
  21. 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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