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Random and stock-flow models of labour market matching - Swedish evidence

Author: Anders Forslund, And Kerstin Johansson, And

Summary of Working paper 2007:11

In this paper we estimate aggregate matching functions taking advantage of a richdatabasethat enables usto compute observations onthe variablesinthe matchingfunction at(virtually) anyfrequency to assess the importance of the time aggregation problem. We also generate stocks, outflows and inflows of vacancies and job seekers to shed light on the importance of stock-flow matching. Finally, we assessthe contribution oflabour marketprogrammeparticipantsto matching.
Our evidence rejects random matching. More precisely, we find that a non-trivialfraction of newjob seekers matchinstantly(within thefirstweek),thatstocksof “old” vacanciesandjob seekersdonot contribute significantly to matching and that the inflow of vacancies matches with thelaggedstock ofjob seekers. Our results also suggest thatlabour marketprogrammeparticipants contributeto matching to alesser extentthan openly unemployedjob seekers.
Wealso find thattheuseoflagged stocksasright-hand sidevariablesin
matchingfunctions(i.e.,ignoring the within-periodinflow ofjob seekers and vacancies)giveslower estimates of matching elasticities
and that this is more pronounced the lower the measurement frequency. Keywords: Stock-Flow Matching, Time Aggregation JEL codes: J6, J64

In this paper we estimate aggregate matching functions taking advantage of a rich database that enables us to compute observations on the variables in the matching function at (virtually) any frequency to assess the importance of the time aggregation problem. We also generate stocks, outflows and inflows of vacancies and job seekers to shed light on the importance of stock-flow matching. Finally, we assess the contribution of labour market programme participants to matching.
Our evidence rejects random matching. More precisely, we find that a non-trivial fraction of new job seekers match instantly (within the first week), that stocks of “old” vacancies and job seekers do not contribute significantly to matching and that the inflow of vacancies matches with the lagged stock of job seekers. Our results also suggest that labour market programme participants contribute to matching to a lesser extent than openly unemployed job seekers.
We also find that the use of lagged stocks as right-hand side variables in matching functions (i.e., ignoring the within-period inflow of job seekers and vacancies) give slower estimates of matching elasticities and that this is more pronounced the lower the measurement frequency.

Keywords: Stock-Flow Matching, Time Aggregation
JEL codes: J6, J64

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