Help Wanted, Job Needed: Estimates of a Matching Function from Employment Service Data.

The author estimates a function that matches vacant jobs and unemployed workers to produce new hires. Israeli law requiring vacancy registration yields unique data quality. The literature underestimates matching function coefficients because of a simultaneity bias, as the outflow of hires depletes stocks of unemployed and vacancies. Instruments and a new simulation method address this bias. A new test reveals strong evidence of heterogeneity in unemployed and vacancies. Estimates imply labor market dynamics that absorb shocks completely within only two months. Reductions in the hire rate of referrals can explain a 2.1 percentage point increase in unemployment between 1978 and 1990. Copyright 1997 by University of Chicago Press.