Dual Labour Markets and Matching Frictions

This paper focuses on friction in the matching process arising in a dual labour market where good and bad jobs coexist. In particular, we present an empirical investigation of the role of strong preferences for permanent contracts to explain job mismatch and longer unemployment duration. To allow for a more flexible matching technology specification and to control for the role of micro level characteristics, we estimate a matching function using different specifications of hazard models for multiple unemployment spells, allowing both random matching and stock-flow matching mechanisms. We find evidence that the determinants of reemployment probabilities differ by gender. We also find a positive effect from having previous job experiences and, according to semi-parametric specifications, undergoing training while unemployed on reemployment probabilities. Overall we find that higher heterogeneity in searched and offered contract types increases frictions in the matching process. Specifically, individuals looking for a permanent contract experience longer unemployment duration, suggesting the existence of congestion problems related to the permanent job labour market segment. Finally, in order to reduce frictions in the matching process, policies aimed to provide training and to increase desirability of temporary contracts should be promoted.