The Labor Market Matching Function: A Quantitative Analysis .

The labor matching function has been the focus of a myriad of studies in labor economics. The matching function, usually of the Cobb-Douglas type, explains new hires as a function of the number of job seekers and the number of job vacancies. Typically, the efficiency of the labor market and the rate of return to matching attain considerable interest. Returns to scale play a pivotal role in explaining the existence of multiple underemployment equilibria, as it has been shown that increasing returns to matching are a necessary, though not sufficient condition for the existence of such inefficient equilibria. This paper employs a meta-analysis to investigate empirical estimates across studies of returns to scale in matching models of the labor market.

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The Labor Market Matching Function
A Quantitative Analysis





The University of Manchester
Economics and Finance
Macroeconomics II


Gary Brown





























Abstract The labor matching function has been the focus of a myriad of studies in labor economics. The matching function, usually of the Cobb-Douglas type, explains new hires as a function of the number of job seekers and the number of job vacancies. Typically, the efficiency of the labor market and the rate of return to matching attain considerable interest. Returns to scale play a pivotal role in explaining the existence of multiple underemployment equilibria, as it has been shown that increasing returns to matching are a necessary, though not sufficient condition for the existence of such inefficient equilibria. This paper employs a meta-analysis to investigate empirical estimates across studies of returns to scale in matching models of the labor market. The results of 18 studies, dealing with the US, Canada, Israel, and various European countries, over a time period extending from the late 1960s to the mid 1990s, are considered. The analysis uses an ordered probit model to assess the occurrence of (dis-) economies of scale. Subsequently, differences in magnitude of matching elasti­cities and scale economies across studies are analyzed in a continuous regression model with restrictions imposed in a simultaneous equation design. The analysis sheds light on theoretical, methodological and em

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