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Revisiting the Matching Function

Author

Listed:
  • Britta Kohlbrecher
  • Christian Merkl
  • Daniela Nordmeier

Abstract

Many labor market models use both idiosyncratic productivity and a vacancy free entry condition. This paper shows that these two features combined generate an equilibrium comovement between matches on the one hand and unemployment and vacancies on the other hand, which is observationally equivalent to a constant returns Cobb-Douglas function commonly used to model match formation. We use German administrative labor market data to show that the matching function correlation solely based on idiosyncratic productivity and free entry is very close to the empirical matching function. Consequently, we argue that standard matching function estimations are seriously biased if idiosyncratic productivity plays a role for match formation. In this case, they are not suitable for the calibration of labor market models

Suggested Citation

  • Britta Kohlbrecher & Christian Merkl & Daniela Nordmeier, 2014. "Revisiting the Matching Function," Kiel Working Papers 1909, Kiel Institute for the World Economy.
  • Handle: RePEc:kie:kieliw:1909
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    File URL: https://www.ifw-members.ifw-kiel.de/publications/revisiting-the-matching-function-1/KWP1909.pdf
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    More about this item

    Keywords

    matching function; idiosyncratic productivity; job creation; vacancies;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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