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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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  • Régis Barnichon & Andrew Figura, 2010. "Labor market heterogeneity and the aggregate matching function," Economics Working Papers 1395, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2013.
    • Handle: RePEc:upf:upfgen:1395
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    Cited by:

    1. Kohlbrecher, Britta & Merkl, Christian & Nordmeier, Daniela, 2016. "Revisiting the matching function," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 350-374.
    2. Carrère, Céline & Grujovic, Anja & Robert-Nicoud, Frédéric, 2015. "Trade and frictional unemployment in the global economy," LSE Research Online Documents on Economics 66490, London School of Economics and Political Science, LSE Library.
    3. Merkl, Christian & Stüber, Heiko, 2016. "Wage cyclicalities and labor market dynamics at the establishment level: Theory and evidence," FAU Discussion Papers in Economics 12/2016, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    4. Pizzinelli, Carlo & Speigner, Bradley, 2017. "Matching efficiency and labour market heterogeneity in the United Kingdom," Bank of England working papers 667, Bank of England.
    5. Hornstein, Andreas & Kudlyak, Marianna, 2016. "Generalized Matching Functions and Resource Utilization Indices for the Labor Market," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 105-126.
    6. Ahn, Hie Joo, 2016. "Heterogeneity in the Dynamics of Disaggregate Unemployment," Finance and Economics Discussion Series 2016-063, Board of Governors of the Federal Reserve System (U.S.).
    7. Hie Ahn & James Hamilton, 2016. "Heterogeneity and Unemployment Dynamics," Working Papers id:11130, eSocialSciences.
    8. Hornstein, Andreas & Kudlyak, Marianna, 2015. "Estimating Matching Efficiency with Variable Search Effort," Working Paper Series 2016-24, Federal Reserve Bank of San Francisco, revised 06 Dec 2016.
    9. Sedláček, Petr, 2014. "Match efficiency and firms' hiring standards," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 123-133.
    10. Craighead, William, 2016. "Hysteresis in a New Keynesian Model," MPRA Paper 70777, University Library of Munich, Germany.
    11. Arpaia, Alfonso & Kiss, Aron & Turrini, Alessandro, 2014. "Is Unemployment Structural or Cyclical? Main Features of Job Matching in the EU after the Crisis," IZA Policy Papers 91, Institute for the Study of Labor (IZA).
    12. Lalé, Etienne, 2017. "Worker reallocation across occupations: Confronting data with theory," Labour Economics, Elsevier, vol. 44(C), pages 51-68.
    13. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo & Lawrence F. Katz, 2016. "Long-Term Unemployment and the Great Recession: The Role of Composition, Duration Dependence, and Nonparticipation," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 7-54.
    14. Sabine Klinger & Enzo Weber, 2016. "Decomposing Beveridge Curve Dynamics By Correlated Unobserved Components," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 877-894, December.
    15. repec:bla:obuest:v:79:y:2017:i:1:p:101-123 is not listed on IDEAS
    16. Dave Reifschneider & William Wascher & David Wilcox, 2015. "Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 71-109, May.
    17. Gehrke, Britta & Weber, Enzo, 2017. "Identifying asymmetric effects of labor market reforms," IAB Discussion Paper 201723, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    18. Daniela PASNICU & Speranta PIRCIOG & Catalin GHINARARU & Gabriela TUDOSE, 2014. "Cluster Analysis of the EU Countries in Terms of Labor Market Indicators," International Conference on Economic Sciences and Business Administration, Spiru Haret University, vol. 1(1), pages 222-229, December.
    19. repec:gnv:wpaper:unige:77631 is not listed on IDEAS
    20. Barnichon, Regis & Figura, Andrew, 2013. "Declining Labor Force Attachment and Downward Trends in Unemployment and Participation," Finance and Economics Discussion Series 2013-88, Board of Governors of the Federal Reserve System (U.S.).
    21. Ioana Marinescu & Roland Rathelot, 2016. "Mismatch Unemployment and the Geography of Job Search," NBER Working Papers 22672, National Bureau of Economic Research, Inc.
    22. Nuarpear Warn Lekfuangfu & Voraprapa Nakavachara & Paphatsorn Sawaengsuksant, 2017. "Glancing at Labour Market Mismatch with User-generated Internet Data," PIER Discussion Papers 53, Puey Ungphakorn Institute for Economic Research, revised Jan 2017.
    23. Jackson, L Fraser & Khaled, Mohammed S, 2018. "Employment participation, unemployment and non market work: Composition models of the United States labour force," Working Paper Series 6893, Victoria University of Wellington, School of Economics and Finance.

    More about this item

    Keywords

    job finding; aggregate; composition; dispersion;

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • 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

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