Estimating Matching Efficiency with Variable Search Effort

Posted: 2 Dec 2016

See all articles by Andreas Hornstein

Andreas Hornstein

Federal Reserve Bank of Richmond

Marianna Kudlyak

Federal Reserve Bank of San Francisco

Date Written: 2016-12-01

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 procyclical 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 countercyclical 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

Suggested Citation

Hornstein, Andreas and Kudlyak, Marianna, Estimating Matching Efficiency with Variable Search Effort (2016-12-01). FRB Richmond Working Paper No. 16-13. Available at SSRN: https://ssrn.com/abstract=2879282

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

Marianna Kudlyak

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

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