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Matching inefficiencies, regional disparities and unemployment

Author

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  • Kangasharju, Aki
  • Pehkonen, Jaakko
  • Hynninen Sanna-Mari

Abstract

In this paper we apply a stochastic frontier approach to examine how matching efficiency and regional differences in structural factors contribute to regional and aggregate unemployment. Our results suggest that there would be a substantial decline in aggregate unemployment if (i) all local labour offices operated with full efficiency or (ii) they shared the same structure of job seekers and vacant jobs as the most favourable office. In the former case an increase in hirings would lower the average unemployment rate by 2.4 percentage points. In the latter case the decrease would be 1.4 percentage points. Further, we find that fixed effects are positively c0orrelated with both a more favourable structure and higher efficiency. This suggests that the fixed effects may capture some part of time invariant features in the structure and efficiency. Thus, the role of structural factors and efficiency in regional unemployment disparities may be higher than estimated.

Suggested Citation

  • Kangasharju, Aki & Pehkonen, Jaakko & Hynninen Sanna-Mari, 2009. "Matching inefficiencies, regional disparities and unemployment," Working Papers 4, Government Institute for Economic Research Finland (VATT).
  • Handle: RePEc:fer:wpaper:4
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    Cited by:

    1. Ossi Korkeamäki, 2011. "The Finnish payroll tax cut experiment revisited," Working Papers 22, Government Institute for Economic Research Finland (VATT).
    2. Ossi Korkeamäki & Tomi Kyyrä, 2012. "Institutional rules, labour demand and retirement through disability programme participation," Journal of Population Economics, Springer;European Society for Population Economics, pages 439-468.
    3. Michael Weber, 2016. "The short-run and long-run effects of decentralizing public employment services," ifo Working Paper Series 209, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Torben Dall Schmidt & Aki Kangasharju & Daniel Rauhut, 2011. "Population Changes and Regional Economic Growth in the Nordic Countries 1994-2006," ERSA conference papers ersa10p922, European Regional Science Association.
    5. Iva Tomić, 2014. "Regional matching (in)efficiency on the Croatian labour market," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(3), pages 287-312, September.

    More about this item

    Keywords

    Technical efficiency; structural factors; matching; regions; aggregate unemployment; Labour market; Työmarkkinat; Regional development; Aluekehitys; Effectiveness of public services; Julkisten palvelujen vaikuttavuus; J640 - Unemployment: Models; Duration; Incidence; and Job Search;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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