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Matching Function Estimation Under Unobserved and Endogenous Search Efficacy

CIREQ-McGill Seminar 2017-2018
joint with the Department of Economics, McGill University

Leacock 429 (McGill University, 855 Sherbrooke West)



Exploiting results from Matzkin (2003), we make three contributions to the empirical literature estimating the matching function commonly used to map unemployment and vacancies into hires. First, we show how to non-parametrically identify the matching function and thus relax the strong parametric restrictions common in the literature. Second, we allow for unobserved search effort and show how to test for the endogeneity arising because search responds to conditions in the labor market. Third, we allow for multiple types of job seekers such as those searching while on the job or searching while out of the labor force, in addition to those unemployed. We estimate the matching function using US data from 2001-2017. Our estimates suggest that aggregate search effort has not changed substantially over time, but that this invariance masks a substantial decline in search effort conditional on observed labor force status. We also show that the elasticity of the matching function varies considerably with market tightness; this differs substantially from what is obtained when parametric restrictions are imposed.

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