Estimating Matching Efficiency with Variable Search Effort

Hornstein, Andreas; Kudlyak, Marianna

doi:10.24148/wp2016-24

Working Paper

Estimating Matching Efficiency with Variable Search Effort

Abstract: We introduce a simple representation of endogenous search effort into the standard matching function with job-seeker heterogeneity. Using the estimated augmented matching function, we study the sources of changes in the average employment transition rate. In the standard matching function the contribution of market tightness (matching efficiency) is increasing (decreasing) in the matching function elasticity. For our augmented matching function search effort is pro-cyclical for small matching elasticity and accounts for most of the transition rate volatility, with small contributions from market tightness and matching efficiency. For a large matching elasticity search effort is strongly counter-cyclical and large movements in matching efficiency compensate for that. Regardless of the matching elasticity, we find a substantial decline of the matching efficiency after 2007.

JEL Classification: E24; J63; J64;

https://doi.org/10.24148/wp2016-24