Working Paper: CEPR ID: DP3648
Authors: Barbara Petrongolo; Christopher Pissarides
Abstract: Reduced-form tests of scale effects in markets with search, run when aggregate matching functions are estimated, may miss important scale effects at the micro level, because of the reactions of job searchers. A semi-structural model is developed and estimated on a British sample, testing for scale effects on the offer arrival rate and the wage offer distribution. When contrasting London with the rest of the country we find scale effects in wage offers. But the larger market delivers higher realized wages and not more matches, because the scale effects on matches are offset by the response of reservation wages.
Keywords: aggregate matching functions; economies of scale; job search; matching
JEL Codes: D83; J31; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market size (L25) | wage offers (J31) |
| market size (L25) | reservation wages (R21) |
| reservation wages (R21) | unemployment hazard rate (J64) |
| market size (L25) | job matches (C78) |
| wage offers (J31) | job matches (C78) |