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Matching Function: Estimations using JOLTS

Author(s): A. Mandal

Journal: The International Journal of Applied Economics and Finance
ISSN 1991-0886

Volume: 5;
Issue: 3;
Start page: 157;
Date: 2011;
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Keywords: Matching function | business cycle | search theory | unemployment | recession

The study estimates a matching function for the US non-farm sector using the Job Opening and Labor Turnover Survey (JOLTS) data. In the recent years, matching function has emerged as the workhorse of modern labor search theory. It enables the modelling of frictions in otherwise conventional economic models, with minimum of added complexity. In theoretical search framework, it is assumed that matching function has constant returns to scale. To verify the returns to scale character of the matching function empirically, monthly JOLTS data has been used from December 2000 to March 2009 to estimate a matching function for the US. The study found that the returns to scale of the matching function vary according to business cycle. The close to constant returns to scale matching function only obtained for the non-recessionary time period. The study concluded that the functional form of the matching function may not be stable over time and one need to take into account business cycle fluctuations and its impact on the functional form of the matching function while understanding labor and worker flows in an economy.

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