A test between matching theories

This paper tests whether aggregate matching is consistent with random matching or stock-flow matching. Using U.K. matching data and correcting for temporal aggregation bias, estimates of the random matching function are consistent with previous work in this field. The data however support the ‘stock-flow’ matching hypothesis. Estimates find that around 50% of newly unemployed workers match quickly. The remaining workers match slowly, their re-employment rates depending statistically on the inflow of new vacancies and not on the vacancy stock. The interpretation is that these latter workers, having failed to match with existing vacancies, wait for new, more suitable vacancies to come onto the market. The results have important policy implications, particularly for long term unemployment and the design of optimal unemployment insurance programs.