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Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies

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  • Sunde, Uwe

    (University of Munich)

Abstract

This paper develops a model of equilibrium unemployment with (unobservable) endogenous on-the-job search and (partly unobservable) endogenous search behavior by firms. The model allows to analyze crowding-out of unemployed job seekers by endogenous on-the job search of employees, and the interaction of job search behavior and vacancy posting policies of firms. Moreover, it is shown that the neglect of endogenous but not observable behavior in the empirical literature on labor matching leads to systematically biased estimates of the matching elasticities, posing a caveat on the results of previous studies testing for constant returns of the matching function. The theoretical model presented allows to predict the direction of the bias. We propose a correction for the estimates of empirical matching functions that leads to unbiased estimates of the matching elasticities. The empirical implications of the theoretical model are tested and confirmed using German administrative data, and unbiased estimates of matching elasticities are presented.

Suggested Citation

  • Sunde, Uwe, 2002. "Unobserved Bilateral Search on the Labor Market: A Theory-Based Correction for a Common Flaw in Empirical Matching Studies," IZA Discussion Papers 520, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp520
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Fahr, René & Sunde, Uwe, 2002. "Employment Status, Endogenous Regional Mobility, and Spatial Dependencies in Labor Markets," IZA Discussion Papers 521, Institute of Labor Economics (IZA).
    2. Uwe Blien & Franziska Hirschenauer & Phan Thi Hong Van, 2010. "Classification of regional labour markets for purposes of labour market policy," Papers in Regional Science, Wiley Blackwell, vol. 89(4), pages 859-880, November.
    3. Fahr, René & Sunde, Uwe, 2002. "Estimations of Occupational and Regional Matching Efficiencies Using Stochastic Production Frontier Models," IZA Discussion Papers 552, Institute of Labor Economics (IZA).
    4. Blien, Uwe & Hirschenauer, Franziska & Phan thi Hong, Van, 2006. "Model-based classification of regional labour markets : for purposes of labour market policy," IAB-Discussion Paper 200629, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Blien, Uwe & Hirschenauer, Franziska & Arendt, Manfred & Braun, Hans Jürgen & Gunst, Dieter-Michael & Kilcioglu, Sibel & Kleinschmidt, Helmut & Musati, Martina & Roß, Hermann & Vollkommer, Dieter & We, 2004. "Typisierung von Bezirken der Agenturen für Arbeit (Classification of employment office areas)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 37(2), pages 146-175.
    6. Blien, Uwe & Hirschenauer, Franziska & Arendt, Manfred & Braun, Hans Jürgen & Gunst, Dieter-Michael & Kilcioglu, Sibel & Kleinschmidt, Helmut & Musati, Martina & Roß, Hermann & Vollkommer, Dieter & We, 2004. "Typisierung von Bezirken der Agenturen für Arbeit (Classification of employment office areas)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 37(2), pages 146-175.

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    More about this item

    Keywords

    omitted variable bias; search channels; hiring competition; on-the-job search; job competition; empirical matching functions;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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