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A Test Between Unemployment Theories Using Matching Data

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  • Coles, Melvyn G
  • Petrongolo, Barbara

Abstract

A new methodology is described which tests between various equilibrium theories of unemployment using matching data. The Paper shows how to correct econometrically for temporal aggregation effects, where the econometrician’s aim is to identify a matching process using data which is recorded monthly, and also shows how to identify different unemployment theories on the data. As implementing this test requires information on the inflow of new vacancies over time, this Paper uses employment agency data for the UK over the period 1985-99. Although the standard random matching approach provides a reasonably good fit, the empirical evidence provides greater support for ‘stock-flow’ matching. Estimates find that over this period, around 87% of newly laid-off workers are on the long-side of their markets and so match with the flow of new vacancies as those vacancies come onto the market. In particular, these workers’ experience average durations of unemployment which exceed 6 months and their matching rates are highly correlated with the inflow of new vacancies. This job queue interpretation of the matching data has important implications for government policy on long term unemployment and optimal UI. It also suggests that previous estimates of the so-called matching function have been misspecified, which potentially explains the large variation in results obtained in that literature.

Suggested Citation

  • Coles, Melvyn G & Petrongolo, Barbara, 2002. "A Test Between Unemployment Theories Using Matching Data," CEPR Discussion Papers 3241, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3241
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    Cited by:

    1. Chassamboulli, Andri, 2013. "Labor-market volatility in a matching model with worker heterogeneity and endogenous separations," Labour Economics, Elsevier, vol. 24(C), pages 217-229.
    2. Jos van Ommeren & Giovanni Russo, 2014. "Firm Recruitment Behaviour: Sequential or Non-sequential Search?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(3), pages 432-455, June.
    3. 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.
    4. Upward, Richard & Martyn Andrews & Steve Bradley & Dave Stott, 2003. "Testing theories of labour market matching," Royal Economic Society Annual Conference 2003 209, Royal Economic Society.
    5. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
    6. Jekaterina Dmitrijeva & Mihails Hazans, 2007. "A Stock-Flow Matching Approach to Evaluation of Public Training Programme in a High Unemployment Environment," LABOUR, CEIS, vol. 21(3), pages 503-540, September.
    7. Joanna Tyrowicz & Tomasz Jeruzalski, 2013. "(In)Efficiency of matching: the case of a post-transition economy," Economic Change and Restructuring, Springer, vol. 46(2), pages 255-275, May.
    8. Borowczyk-Martins, Daniel & Jolivet, Grégory & Postel-Vinay, Fabien, 2011. "Accounting For Endogenous Search Behavior in Matching Function Estimation," CEPR Discussion Papers 8471, C.E.P.R. Discussion Papers.
    9. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, vol. 10, pages 284-316, August.
    10. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    11. Ebrahimy, Ehsan & Shimer, Robert, 2010. "Stock-flow matching," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1325-1353, July.
    12. M. J. Andrews & S. Bradley & D. Stott & R. Upward, 2008. "Successful Employer Search? An Empirical Analysis of Vacancy Duration Using Micro Data," Economica, London School of Economics and Political Science, vol. 75(299), pages 455-480, August.
    13. M Andrews & S Bradley & D Stott & R Upward, 2003. "Why do Job-Seeker and Vacancy Hazards Slope Downwards? Estimating a Two-Sided Search Model of the Labour Market," The School of Economics Discussion Paper Series 0320, Economics, The University of Manchester.
    14. Robert Shimer, 2007. "Mismatch," American Economic Review, American Economic Association, vol. 97(4), pages 1074-1101, September.
    15. Iva Tomic, 2012. "The Efficiency of the Matching Process: Exploring the Impact of Regional Employment Offices in Croatia," Working Papers 1204, The Institute of Economics, Zagreb.
    16. Stephen R. G. Jones & W. Craig Riddell, 2006. "Unemployment and Nonemployment: Heterogeneities in Labor Market States," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 314-323, May.
    17. Sunde, Uwe, 2002. "Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies," IZA Discussion Papers 520, Institute for the Study of Labor (IZA).
    18. Jekaterina Dmitrijeva, 2008. "Matching and Labour Market Efficiency across Space and through EU accession: Evidence from Latvia, Estonia and Slovenia," Documents de recherche 08-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

    More about this item

    Keywords

    hypothesis testing; matching; unemployment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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