Returns to Scale in the Matching Function and the U/V Curve

Abstract

Our considerations so far have been based on the assumption that the matching technology in the labour market is linear-homogenous. This assumption has implicitly been made in practically all empirical U/V studies. But as we will see in this chapter further down, only if this assumption holds, shifts of the steady-state Beveridge curve can be regarded as an increase or decrease of structural and/or frictional unemployment. If, however, the matching technology exhibits increasing or decreasing returns to scale, movements of the curve, holding variations in the acceptance probability constant, may be due to an increase or decrease in the matching activity level.