Modelling Exits from Unemployment in Eastern Germany: A Matching Function Approach

A matching function approach is applied to unemployment exit data from a panel of Eastern German labour office districts since monetary union. With comparable West German data, such a matching function exhibits constant returns, is stable, and can account for at least three-quarters of the variance of exits from unemployment. In contrast, the Eastern German matching function exhibits increasing returns, and vacancies enter the function insignificantly or with incorrect sign. These estimates also differ significantly from those for the Czech Republic, discounting explanations related to the transformation <MI>per se<D>. When the effects of special labour market measures introduced since monetary union are accounted for, Eastern German estimates resemble those of the Czech Republic, i.e. they exhibit constant to mildly decreasing returns.