Externalities in the Matching of Workers and Firms in Britain

We provide empirical evidence on the nature of spatial externalities in a matching model for Britain. We use a monthly panel of outflows, unemployment and vacancy stocks data from the registers at Job centres in Britain; these are mapped on to travel-to-work areas. We find evidence of significant spill-over effects that are generally in line with the predictions of theory. For example, we find that, conditional on local labour market conditions, high unemployment levels in neighbouring areas raise the number of local filled vacancies but lower the local outflow from unemployment.