August 2002

IZA DP No. 552: Estimations of Occupational and Regional Matching Efficiencies Using Stochastic Production Frontier Models

substantially revised and rewritten version available as IZA DP No. 1660

By applying a stochastic production frontier approach to the matching process of unemployed and vacancies, this paper provides novel detailed insights into the process of job creation. For different labor markets as defined by occupation and region, the methodology produces estimates of the relative importance of demand and supply factors for the creation of new jobs, and of the overall efficiency of job creation. Some crucial determinants of the overall matching efficiency are identified and analyzed. This allows to make differentiated statements about the appropriateness of labor market policies, and therefore provides policy makers with novel relevant information.