substantially revised and rewritten version available as IZA DP No. 1660
By applying a stochastic production frontier approach to the matching process of unemployed
and vacancies, this paper provides novel detailed insights into the process of job creation.
For different labor markets as defined by occupation and region, the methodology produces
estimates of the relative importance of demand and supply factors for the creation of new
jobs, and of the overall efficiency of job creation. Some crucial determinants of the overall
matching efficiency are identified and analyzed. This allows to make differentiated statements
about the appropriateness of labor market policies, and therefore provides policy makers with
novel relevant information.
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