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Regional Matching Frictions and Aggregate Unemployment

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Author Info
Aki Kangasharju
Sanna-Mari Hynninen
Jaakko Pehkonen

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Abstract

This study demonstrates that a stochastic frontier approach applied to regional level data offers a convenient and interesting method to examine how regional differences in matching efficiency and structural factors contribute to aggregate unemployment. The study reveals notable and temporally stable differences in matching efficiency across travel-to-work areas in Finland. If all areas were as efficient as the most efficient one, the number of hirings would increase by about 40 per cent. This would reduce the aggregate unemployment rate from the current 8.5 per cent level to 6.0 per cent. If all the areas shared the same structural characteristics as the most favourable area, the aggregate unemployment rate would drop to 7.1 per cent.

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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 383.

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Date of creation: 03 Mar 2006
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Handle: RePEc:fer:dpaper:383

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Keywords: Efficiency; matching; aggregate unemployment; regional labour markets;

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  1. Patricia M. Anderson & Simon M. Burgess, 2000. "Empirical Matching Functions: Estimation and Interpretation Using State-Level Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 93-102, February. [Downloadable!] (restricted)
  2. Pekka Ilmakunnas & Hanna Pesola, 2003. "Regional Labour Market Matching Functions and Efficiency Analysis," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 17(3), pages 413-437, 09. [Downloadable!] (restricted)
  3. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March. [Downloadable!]
  4. Turon, Helene & Simon Burgess, 2003. "Unemployment equilibrium and on-the-job search," Royal Economic Society Annual Conference 2003 208, Royal Economic Society. [Downloadable!]
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  5. Layard, Richard & Bean, Charles, 1989. " Why Does Unemployment Persist?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 91(2), pages 371-96.
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  6. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November. [Downloadable!] (restricted)
  7. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  8. Aki Kangasharju & Jaakko Pehkonen & Sari Pekkala, 2005. "Returns to scale in a matching model: evidence from disaggregated panel data," Applied Economics, Taylor and Francis Journals, vol. 37(1), pages 115-118, January. [Downloadable!] (restricted)
  9. Karsten Albæk & Henrik Hansen, 2004. "The Rise in Danish Unemployment: Reallocation or Mismatch?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(4), pages 515-536, 09. [Downloadable!] (restricted)
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  10. Barbara Petrongolo & Christopher A. Pissarides, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June. [Downloadable!] (restricted)
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  11. René Fahr & Uwe Sunde, 2005. "Regional Dependencies in Job Creation: An Efficiency Analysis for Western Germany," IZA Discussion Papers 1660, Institute for the Study of Labor (IZA). [Downloadable!]
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  12. Holden, Steinar & Nymoen, Ragnar, 2002. " Measuring Structural Unemployment: NAWRU Estimates in the Nordic Countries," Scandinavian Journal of Economics, Blackwell Publishing, vol. 104(1), pages 87-104. [Downloadable!] (restricted)
  13. Burdett, Kenneth & Coles, Melvyn G & van Ours, Jan C, 1994. "Temporal Aggregation Bias in Stock-Flow Models," CEPR Discussion Papers 967, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Burgess, Simon M, 1993. "A Model of Competition between Unemployed and Employed Job Searchers: An Application to the Unemployment Outflow Rate in Britain," Economic Journal, Royal Economic Society, vol. 103(420), pages 1190-204, September. [Downloadable!] (restricted)
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