Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies

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Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies

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Sunde, Uwe () (IZA Bonn and University of Bonn)

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Uwe Sunde

Abstract

This paper develops a model of equilibrium unemployment with (unobservable) endogenous on-the-job search and (partly unobservable) endogenous search behavior by firms. The model allows to analyze crowding-out of unemployed job seekers by endogenous on-the job search of employees, and the interaction of job search behavior and vacancy posting policies of firms. Moreover, it is shown that the neglect of endogenous but not observable behavior in the empirical literature on labor matching leads to systematically biased estimates of the matching elasticities, posing a caveat on the results of previous studies testing for constant returns of the matching function. The theoretical model presented allows to predict the direction of the bias. We propose a correction for the estimates of empirical matching functions that leads to unbiased estimates of the matching elasticities. The empirical implications of the theoretical model are tested and confirmed using German administrative data, and unbiased estimates of matching elasticities are presented.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 520.

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Length: 37 pages
Date of creation: Jun 2002
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Handle: RePEc:iza:izadps:dp520

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Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-07-31 (All new papers)
NEP-LAB-2002-07-31 (Labour Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Fahr, René & Sunde, Uwe, 2002. "Estimations of Occupational and Regional Matching Efficiencies Using Stochastic Production Frontier Models," IZA Discussion Papers 552, Institute for the Study of Labor (IZA). [Downloadable!]
Sunde, Uwe & Fahr, René, 2002. "Employment Status, Endogenous Regional Mobility, and Spatial Dependencies in Labor Markets," IZA Discussion Papers 521, Institute for the Study of Labor (IZA). [Downloadable!]

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