Working Paper: CEPR ID: DP2266
Authors: Barbara Petrongolo
Abstract: The assumption of constant returns in the matching function, embodied in most bilateral search models, is crucial to ensure the uniqueness of the unemployment rate along a steady state growth path. This paper explores whether this is an acceptable assumption by estimating individual re-employment probabilities on a sample of entrants into unemployment. This is done by applying hazard models to survey data on both completed and uncompleted unemployment durations. The hypothesis of constant returns to matching is not rejected, on the basis of the evidence that the job-finding hazard only depends on local labour market tightness, and it is independent of its size.
Keywords: Hazard functions; Returns to matching; Local labour markets
JEL Codes: J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local labor market tightness (vacancy-unemployment ratio) (J69) | job-finding hazard (J63) |
| absolute size of job seeker pool (J68) | job-finding hazard (J63) |
| individual educational attainment (I24) | reemployment probability (J68) |
| local labor demand for men (J29) | reemployment probability (J68) |
| local labor demand for women (J21) | reemployment probability (J68) |
| duration in unemployment (J64) | job-finding hazard (J63) |