Matching efficiency and the composition of the unemployed

This paper studies how compositional changes among the unemployed and the matching efficiency in the labor market affects the matching process between establishments and job seekers in Norway. We use an aggregate matching function which takes into account dispersion across local labor markets, and allow for variation in search intensity among the unemployed. Using detailed micro-data on individuals and establishments for the period 2001-2024, we find that the decreasing matching efficiency in the labor market over the period 2007-2019 was driven by a increased dispersion of matching rates across local labor markets due to differential labor market conditions, and not a change in the allocation of unemployed across different local labor markets with inherently different matching efficiencies.