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Returns to scale in a matching model: evidence from disaggregated panel data


  • Aki Kangasharju
  • Jaakko Pehkonen
  • Sari Pekkala


The returns to scale in the matching function play an important role in models with endogenous search effort. Due to positive externalities, increasing returns to scale in matching can support high or low activity equilibrium in the labour market. In this study, we examine this issue using panel data from Finnish employment offices. The study finds that the results from the Cobb-Douglas and translog specification are qualitatively different. The CD specification of the matching function exhibits constant returns to scale. The translog specification, in turn, exhibits increasing returns to scale. The elasticity estimate for returns, using the preferred specification and minimum and maximum sample values for job seekers and vacancies, fall in the range of 1.1 to 1.6.

Suggested Citation

  • Aki Kangasharju & Jaakko Pehkonen & Sari Pekkala, 2005. "Returns to scale in a matching model: evidence from disaggregated panel data," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 115-118.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:1:p:115-118
    DOI: 10.1080/00036840412331313530

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    References listed on IDEAS

    1. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
    2. Daniel Munich & Jan Svejnar & Katherine Terrell, 1998. "Worker-Firm Matching and Unemployment in Transition to a Market Economy: (Why) Were the Czechs More Successful than Others?," William Davidson Institute Working Papers Series 107, William Davidson Institute at the University of Michigan.
    3. Christopher A. Pissarides & Barbara Petrongolo, 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.
    4. Coles, Melvyn G & Petrongolo, Barbara, 2002. "A Test Between Unemployment Theories Using Matching Data," CEPR Discussion Papers 3241, C.E.P.R. Discussion Papers.
    5. 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.
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    Cited by:

    1. Michael Stops, 2011. "Job Matching on non-separated Occupational Labour Markets," ERSA conference papers ersa11p372, European Regional Science Association.
    2. Angela, Cipollone & Paolo E., Giordani, 2016. "When Entrepreneurs Meet Financiers: Evidence from the Business Angel Market," MPRA Paper 69545, University Library of Munich, Germany.
    3. Stops Michael & Mazzoni Thomas, 2010. "Matchingprozesse auf beruflichen Teilarbeitsmärkten / Job Matching on Occupational Labour Markets," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(3), pages 287-312, June.
    4. Kangasharju, Aki & Hynninen Sanna-Mari, Pehkonen Jaakko, 2006. "Regional Matching Frictions and Aggregate Unemployment," Discussion Papers 383, VATT Institute for Economic Research.
    5. Michael Stops, 2014. "Job matching across occupational labour markets," Oxford Economic Papers, Oxford University Press, vol. 66(4), pages 940-958.
    6. Peter A. Diamond & Aysegül Sahin, 2016. "Disaggregating the Matching Function," CESifo Working Paper Series 6266, CESifo Group Munich.
    7. Nils Gottfries & Karolina Stadin, 2017. "The Matching Process: Search or Mismatch?," CESifo Working Paper Series 6300, CESifo Group Munich.
    8. Godfrey Keller & Kevin Roberts & Margaret Stevens, 2007. "Unemployment, Participation and Market Size," Economics Series Working Papers 362, University of Oxford, Department of Economics.
    9. Sanna-Mari Hynninen, 2005. "Labour market status of job seekers in regional matching processes," ERSA conference papers ersa05p499, European Regional Science Association.
    10. Gottfries, Nils & Stadin, Karolina, 2016. "The Matching Process:Search Or Mismatch?," Working Paper Series 2016:14, Uppsala University, Department of Economics.
    11. Razzak, Weshah, 2008. "On The dynamic of search, matching and productivity in New Zealand and Australia," MPRA Paper 8262, University Library of Munich, Germany.
    12. Gottfries, Nils & Stadin, Karolina, 2016. "The Matching Process: Search or Mismatch," Ratio Working Papers 279, The Ratio Institute.
    13. Sanna-Mari Ahtonen, 2004. "Matching across space: evidence from Finland," ERSA conference papers ersa04p205, European Regional Science Association.

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