Matching in local labor markets: a stochastic frontier approach.

This paper investigates the technical efficiency of labor market matching from a stochastic frontier approach. The true fixed-effects model (Greene J Prod Anal 23:7–32, ; J Econom 126:269–303, ) is utilised in order to separate cross-sectional heterogeneity from inefficiency, and inefficiency terms are modelled following Battese and Coelli (Empir Econ 20:325–332, ). The data set consists of almost 17,000 observations from Local Labor Offices (LLOs) in Finland. 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 23%. The heterogeneity of the job-seeker stock is an important determinant of matching efficiency: the weight of the composition of the job-seeker stock in the inefficiency terms is on average 85%. [ABSTRACT FROM AUTHOR]