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Labor market heterogeneity and the aggregate matching function

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Abstract

The matching function -a key building block in models of labor market frictions- implies that the job finding rate depends only on labor market tightness. We estimate such a matching function and find that the relation, although remarkably stable over 1967-2007, broke down spectacularly after 2007. We argue that labor market heterogeneities are not fully captured by the standard matching function, but that a generalized matching function that explicitly takes into account worker heterogeneity and market segmentation is fully consistent with the behavior of the job finding rate. The standard matching function can break down when, as in the Great Recession, the average characteristics of the unemployed change too much, or when dispersion in labor market conditions -the extent to which some labor markets fare worse than others- increases too much.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1395.

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Date of creation: Oct 2010
Date of revision: Sep 2013
Handle: RePEc:upf:upfgen:1395

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Web page: http://www.econ.upf.edu/

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Keywords: job finding; aggregate; composition; dispersion;

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  10. Daniel Aaronson & Jonathan Davis & Luojia Hu, 2012. "Explaining the decline in the U.S. labor force participation rate," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Mar.
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Cited by:
  1. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 123-133.
  2. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo & Lawrence F. Katz, 2014. "Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Non-Participation," NBER Working Papers 20273, National Bureau of Economic Research, Inc.

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