Labor Market Heterogeneity and the Aggregate Matching Function

Régis Barnichon · Andrew Figura

163 citations0/0 files storedAmerican Economic Journal Macroeconomics

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Labor market dynamics and wage inequality Monetary Policy and Economic Impact Economic theories and models

Abstract

We estimate an aggregate matching function and find that the regression residual, which captures movements in matching efficiency, displays procyclical fluctuations and a dramatic decline after 2007. Using a matching function framework that explicitly takes into account worker heterogeneity as well as market segmentation, we show that matching efficiency movements can be the result of variations in the degree of heterogeneity in the labor market. Matching efficiency declines substantially when, as in the Great Recession, the average characteristics of the unemployed deteriorate substantially, or when dispersion in labor market conditions—the extent to which some labor markets fare worse than others—increases markedly. (JEL E24, E32, J41, J42)

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2009Misallocation and Manufacturing TFP in China and India *1994Job Creation and Job Destruction in the Theory of Unemployment 1991Equilibrium Unemployment Theory n.d.Looking into the Black Box: A Survey of the Matching Function 2007Misallocation and Manufacturing TFP in China and India 2007Reassessing the Ins and Outs of Unemployment 1989The Beveridge Curve 1977Equilibrium Distributions of Sales and Advertising Prices

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