Shifting the Beveridge Curve: What Affects Labor Market Matching ...

Policies which could facilitate labor market matching include active labor market ..... provides evidence that matching is more difficult the larger the share of ...
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WP/16/93

Shifting the Beveridge Curve: What Affects Labor Market Matching?

by Elva Bova, João Tovar Jalles, and Christina Kolerus

© 2016 International Monetary Fund

WP/16/93

IMF Working Paper Fiscal Affairs Department Shifting the Beveridge Curve: What Affects Labor Market Matching? Prepared by Elva Bova, João Tovar Jalles, and Christina Kolerus1 Authorized for distribution by Benedict Clements April 2016

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Abstract This paper explores conditions and policies that could affect the matching between labor demand and supply. We identify shifts in the Beveridge curves for 12 OECD countries between 2000Q1 and 2013Q4 using three complementary methodologies and analyze the short-run determinants of these shifts by means of limited-dependent variable models. We find that labor force growth as well as employment protection legislation reduce the likelihood of an outward shift in the Beveridge curve,. Our findings also show that the matching process is more difficult the higher the share of employees with intermediate levels of education in the labor force and when long-term unemployment is more pronounced. Policies which could facilitate labor market matching include active labor market policies, such as incentives for start-up and job sharing programs. Passive labor market policies, such as unemployment benefits, as well as labor taxation render matching signficantly more difficult. JEL Classification Numbers: E24, H2, H5, J6, R10 Keywords: vacancies, unemployment, employment protection legislation, cointegration, breaks, probit Authors’ E-Mail Addresses: [email protected], [email protected], [email protected] 1 The authors are grateful to Vitor Gaspar, Benedict Clements, Romain Duval, Christian Ebeke, Robert Sierhej, Rima Turk, Li Zeng, and Helge Berger and participants at the FAD Seminar Series for useful comments and suggestions. Thanks also go to Ethan Alt for excellent research assistance. Any remaining errors are the authors’ sole responsibility and the views expressed herein do not reflect necessarily those of the IMF or its member countries.

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Abstract ................................................................................................................................................................................. 2  I. Introduction ..................................................................................................................................................................... 4  II. Literature Review .......................................................................................................................................................... 6  A. Theoretical Framework ............................................................................................................................... 6  B. Empirical Studies ........................................................................................................................................... 7  III. Methodology and Data ............................................................................................................................................. 9  A. Identification of Shifts................................................................................................................................. 9  B. Factors Underlying the Shifts ................................................................................................................ 11  C. Data ................................................................................................................................................................. 13  IV. Empirical Analysis .............................................


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