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New Microfoundations for the Aggregate Matching Function, with Empirical and Theoretical Implications

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  • Margaret Stevens

Abstract

Although a number of different models have been suggested for the process that brings workers and firms together in the labour market, none of these performs well in empirical studies of the aggregate matching function. Empirically, the most successful functional form is Cobb-Douglas, for which there are no microfoundations in the existing literature. I present a new model for the matching process, based on a `telephone line` Poisson queuing process. This implies a CES matching function, approximately Cobb-Douglas when marginal search costs are approximately constant. The model provides an interpretation for empirical evidence, and insight into the theoretical efficiency conditions for matching models.

Suggested Citation

  • Margaret Stevens, 2002. "New Microfoundations for the Aggregate Matching Function, with Empirical and Theoretical Implications," Economics Series Working Papers 95, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:95
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    References listed on IDEAS

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    1. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
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    4. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    5. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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    Cited by:

    1. Mathan Satchi & Jonathan Temple, 2006. "Growth and labour markets in developing countries," Bristol Economics Discussion Papers 06/581, School of Economics, University of Bristol, UK.
    2. Heidi Soininen, 2007. "Finnish Evidence of Changes in Labor Market Matching," Finnish Economic Papers, Finnish Economic Association, vol. 20(1), pages 57-71, Spring.

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    More about this item

    Keywords

    search; matching function;

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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