Hiring functions and a new index for measuring mismatch: Some empirical results for european countries

Conclusion

This paper investigates the relation between mismatch and sectoral hiring functions. Traditionally, the indices used to measure structural mismatch were constructed by assuming that the hiring functions are identical across sectors. However, both theoretically and empirically, there is no reason to believe that the hiring behavior of the firms or the search methods of the workers are identical across sectors. Evidence for this is provided in the Appendix of this paper where it is shown that theUV curves for the different regions in Great Britain and different sectors in Switzerland are not identical. Brunello [1990] also shows that the hiring functions do not have to be identical. This paper also demonstrates that it may not be possible to eliminate structural unemployment totally when the hiring functions across sectors are non-identical. In other words, total hiring may be maximized even if theV/U ratios are not equalized across sectors. This conclusion is important as it highlights that the indices used in empirical work to measure structural mismatch may be seriously flawed.

This paper develops an index for measuring mismatch which is rooted in the theory of hiring functions and utilizes the approach of measuring angle between vectors by the use of cos(ϑ) functions. The FH index presented in this paper is based on a simple arithmetic mean of regional or sectoral cos(ϑ) functions. It has been estimated for several European countries, and the empirical results highlight some interesting conclusions concerning regional mismatch in these countries.