Working Paper: CEPR ID: DP800
Authors: Michael C. Burda
Abstract: A matching function approach is applied to unemployment exit data from a panel of Eastern German labour office districts since monetary union. With comparable West German data, such a matching function exhibits constant returns, is stable, and can account for at least three-quarters of the variance of exits from unemployment. In contrast, the Eastern German matching function exhibits increasing returns, and vacancies enter the function insignificantly or with incorrect sign. These estimates also differ significantly from those for the Czech Republic, discounting explanations related to the transformation per se. When the effects of special labour market measures introduced since monetary union are accounted for, Eastern German estimates resemble those of the Czech Republic, i.e. they exhibit constant to mildly decreasing returns.
Keywords: unemployment; matching function; gross flow; eastern Germany
JEL Codes: J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1% increase in the stock of active labor market programs (ALMPs) (J68) | 0.5% increase in monthly outflows from unemployment (J65) |
| eastern German matching function exhibits increasing returns (P23) | vacancies have an insignificant or negative effect on exits from unemployment (J63) |
| eastern German matching function estimates resemble those of the Czech Republic when controlling for ALMPs (J68) | matching function exhibits constant to mildly decreasing returns (C78) |
| eastern German labor market diverges significantly from that of western Germany (J48) | observed matching function behavior in the Czech Republic is more aligned with western standards (P29) |