Scale Effects in Markets with Search

Petrongolo, Barbara; Pissarides, Christopher A.

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Scale Effects in Markets with Search

IZA Discussion Paper No. 691

36 Pages Posted: 25 Feb 2003 Last revised: 9 May 2025

See all articles by Barbara Petrongolo

Barbara Petrongolo

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Christopher A. Pissarides

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Hong Kong University of Science & Technology (HKUST)

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Abstract

Reduced-form tests of scale effects in markets with search, run when aggregate matchingfunctions are estimated, may miss important scale effects at the micro level, because of thereactions of job searchers. A semi-structural model is developed and estimated on a Britishsample, testing for scale effects on the offer arrival rate and the wage offer distribution. Whencontrasting London with the rest of the country we find scale effects in wage offers. But thelarger market delivers higher realized wages and not more matches, because the scaleeffects on matches are offset by the response of reservation wages.

Keywords: job search, wage offer distribution, unemployment, aggregate matching functions, matching, economies of scale

JEL Classification: J31, J64, D83

Suggested Citation: Suggested Citation

Petrongolo, Barbara and Pissarides, Christopher, Scale Effects in Markets with Search. IZA Discussion Paper No. 691, Available at SSRN: https://ssrn.com/abstract=382785