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

Working paper

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.

Authors: Stevens, M

• Publisher: Department of Economics (University of Oxford)
• Series: Discussion paper series
• Publication date: 2002-04-01
• Language: English