Disaggregate matching functions, spurious mismatch and occupational reallocation in Germany

Abstract

The macroeconomic approach to labour markets has changed during the recent past. Several influential papers by Blanchard and Diamond (1989, 1990a, 1990b, 1992) propagate a flow approach to labour markets. The basic motivation of this new research agenda is the observation that, at any point in time, many firms are looking for workers, and many workers are looking for jobs. Some time series adjusted by Abowd and Zellner (1985) show that each month, roughly 7% of the U.S. labour force moves in or out of employment. In Germany, figures are smaller but still high: In 1987, a period of net job growth, each month 1.6% of the labour force left employment and 1.7% moved into employment (Burda and Wyplosz, 1990). Germany’s employment office reported 3.7 million new cases of unemployment and 3.6 million exits from unemployment, or about 310, 000 per month, while unemployment itself averaged only 2.2 million. Moreover, recent evidence by Davis and Haitiwanger (1990) shows that these gross flows do not simply consist of workers reallocating themselves across a given set of jobs. They find strong fluctuations in job creation and job destruction (“destruction” means that the job is not filled again). Using U.S. data of the period from 1979 to 1983, job turnover in manufacturing averaged some 10% per quarter.