DP2266 Re-Employment Probabilities and Returns to Matching

Author(s): Barbara Petrongolo
Publication Date: October 1999
Keyword(s): Hazard Functions, Local Labour Markets, Returns To Matching
JEL(s): J63, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2266

The assumption of constant returns in the matching function, embodied in most bilateral search models, is crucial to ensure the uniqueness of the unemployment rate along a steady state growth path. This paper explores whether this is an acceptable assumption by estimating individual re-employment probabilities on a sample of entrants into unemployment. This is done by applying hazard models to survey data on both completed and uncompleted unemployment durations. The hypothesis of constant returns to matching is not rejected, on the basis of the evidence that the job-finding hazard only depends on local labour market tightness, and it is independent of its size.