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Federal Reserve Bank of San Francisco
Working Paper Series
Estimating Matching Efficiency with Variable Search Effort
Andreas Hornstein
Marianna Kudlyak

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.

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Andreas Hornstein & Marianna Kudlyak, Estimating Matching Efficiency with Variable Search Effort, Federal Reserve Bank of San Francisco, Working Paper Series 2016-24, 21 May 2015, revised 06 Dec 2016.
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Note: This Draft: December 6, 2016. First Draft: May 21, 2015
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DOI: 10.24148/wp2016-24
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