published in: International Economic Review, 2008, 49 (4), 1113-1141
This paper tests whether aggregate matching is consistent with unemployment being mainly
due to search frictions or due to job queues. Using U.K. data and correcting for temporal
aggregation bias, estimates of the random matching function are consistent with previous
work in this field, but random matching is formally rejected by the data. The data instead
support "stock-flow" matching. Estimates find that around 50% of newly unemployed workers
match quickly - they are interpreted as being on the short-side of their skill markets. The
remaining workers match slowly, their re-employment rates depending statistically on the
inflow of new vacancies and not on the vacancy stock. Having failed to match with existing
vacancies, these workers wait for the arrival of new job vacancies. The results have
important policy implications, particularly with reference to the design of optimal
unemployment insurance programs.
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