COMPOSITION OF THE JOB-SEEKER STOCK IN LABOUR MARKET MATCHING :A STOCHASTIC FRONTIER APPROACH

Resumen

This paper investigates the technical efficiency of labour market matching taking a stochastic frontier
approach. The data set consists of monthly data from 145 Local Labour Offices (LLOs) in Finland over the
period 1995/01-2004/09. The true fixed-effects model is utilised in order to separate cross-sectional
heterogeneity from inefficiency. According to the results, there are notable differences in matching efficiency
between regions, and these differences contribute significantly to the number of filled vacancies. If all regions
were as efficient as the most efficient one, the number of total matches per month would increase by over 10
%. If inefficiency had no role in the matching function, the number of matches would increase by almost 24 %.
The weight of the composition of the job-seeker stock and other environmental variables in the determination
of matching inefficiency is on average 61 %. In particular, job seekers out of the labour force and highly
educated job seekers improve technical efficiency in the matching function