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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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Author Info

  • Sunde, Uwe

    ()
    (University of Munich)

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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Bibliographic Info

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

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Length: 38 pages
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:iza:izadps:dp520

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Related research

Keywords: omitted variable bias; search channels; hiring competition; on-the-job search; job competition; empirical matching functions;

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References

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  1. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  2. Coles, Melvyn G & Smith, Eric, 1994. "Marketplaces and Matching," CEPR Discussion Papers 1048, C.E.P.R. Discussion Papers.
  3. Boeri, Tito, 1999. "Enforcement of employment security regulations, on-the-job search and unemployment duration," European Economic Review, Elsevier, vol. 43(1), pages 65-89, January.
  4. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  5. Coles, Melvyn & Petrongolo, Barbara, 2003. "A Test between Unemployment Theories Using Matching Data," IZA Discussion Papers 723, Institute for the Study of Labor (IZA).
  6. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November.
  7. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June.
  8. Garibaldi, Pietro, 2004. "Search Unemployment With Advance Notice," Macroeconomic Dynamics, Cambridge University Press, vol. 8(01), pages 51-75, February.
  9. Petrongolo, Barbara, 1999. "Re-Employment Probabilities and Returns to Matching," CEPR Discussion Papers 2266, C.E.P.R. Discussion Papers.
  10. James W. Albrecht & Pieter A. Gautier & Susan B. Vroman, 2001. "Matching with Multiple Applications," Tinbergen Institute Discussion Papers 01-080/3, Tinbergen Institute.
  11. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
  12. Gerard A. Pfann, 2001. "Downsizing," Working Papers 0110, Harris School of Public Policy Studies, University of Chicago.
  13. Lindeboom, M. & Ours, J.C. & Renes, G., 1991. "Matching employers and workers : an empirical analysis on the effectiveness of search," Serie Research Memoranda 0063, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  14. 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.
  15. Calvó-Armengol, Antoni & Zenou, Yves, 2001. "Job Matching, Social Network and Word-of-Mouth Communication," CEPR Discussion Papers 2797, C.E.P.R. Discussion Papers.
  16. Ours, J.C. van & Broersma, L., 1999. "Job searchers, job matches and the elasticity of matching," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80319, Tilburg University.
  17. 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.
  18. van Ours, Jan C., 1995. "An empirical note on employed and unemployed job search," Economics Letters, Elsevier, vol. 49(4), pages 447-452, October.
  19. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March.
  20. Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers 546, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Belzil, Christian, 2000. "Job Creation and Job Destruction, Worker Reallocation, and Wages," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 183-203, April.
  22. Fahr, René & Sunde, Uwe, 2001. "Strategic Hiring Behavior in Empirical Matching Functions," IZA Discussion Papers 320, Institute for the Study of Labor (IZA).
  23. 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.
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Citations

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Cited by:
  1. 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).
  2. Blien, Uwe & Hirschenauer, Franziska & Arendt, Manfred & Braun, Hans Jürgen & Gunst, Dieter-Michael & Kilcioglu, Sibel & Kleinschmidt, Helmut & Musati, Martina & Roß, Hermann & Vollkommer, Dieter & , 2004. "Typisierung von Bezirken der Agenturen für Arbeit (Classification of employment office areas)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 37(2), pages 146-175.
  3. repec:iab:iabzaf:v:37:i:2:p:146-175 is not listed on IDEAS
  4. Fahr, René & Sunde, Uwe, 2002. "Employment Status, Endogenous Regional Mobility, and Spatial Dependencies in Labor Markets," IZA Discussion Papers 521, Institute for the Study of Labor (IZA).

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