Labor Market Heterogeneity and the Aggregate Matching Function

Recognition Program

Authors: Régis Barnichon and Andrew Figura

American Economic Journal: Macroeconomics, Vol. 7, No 4, 222--249, January, 2015

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.

This paper originally appeared as Barcelona GSE Working Paper 727
This paper is acknowledged by the Barcelona GSE Research Recognition Program