July 2005

IZA DP No. 1660: Regional Dependencies in Job Creation: An Efficiency Analysis for Western Germany

published in: Applied Economics, 2006, 38 (10), 1193-1206

This paper investigates the efficiency of the matching process between job seekers and vacancy posting firms in West-Germany, using variation across labor market regions and across time. The results of a stochastic frontier analysis shed new light on extent and regional differences of search frictions, on potential determinants of frictional inefficiencies and on the consequences of German reunification for the matching process. The paper also presents novel evidence on the complex interactions between spatial contingencies among regional labor markets: matching efficiency decreases with spatial autocorrelation in hiring, implying indirect evidence for crowding externalities.