Nonparametric Estimation of Matching Efficiency and Mismatch in Labor Markets via Public Employment Security Offices in Japan, 1972-2024

TL;DR

This paper analyzes Japan's labor market from 1972 to 2024, revealing declining matching efficiency, variable elasticities, and significant occupational mismatches, using nonparametric methods and extending existing mismatch indices.

Contribution

It introduces a nonparametric approach to measure matching efficiency and mismatch in labor markets, extending the mismatch index to better capture occupational disparities.

Findings

Matching efficiency has declined over time, especially after 2015.

Match elasticity with respect to unemployment ranges from 0.5 to 0.9.

Occupational mismatch is more severe than regional mismatch, and previous indices underestimated this mismatch.

Abstract

I examine changes in matching efficiency and elasticities in Japan's labor market via Hello Work for unemployed workers from January 1972 to April 2024 using a nonparametric identification approach by y Lange and Papageorgiou (2020). I find a declining trend in matching efficiency, consistent with decreasing job and worker finding rates. The implied match elasticity with respect to unemployment is 0.5-0.9, whereas the implied match elasticity with respect to vacancies varies between -0.4 and 0.4. Decomposing aggregate data into full-time and part-time ones, I find that the sharp decline of matching efficiency after 2015 shown in the aggregate trend is driven by the decline of both full-time and part-time ones. Second, I extend the mismatch index proposed by Sahin et al (2014) to the nonparametric version and develop the computational methodology. I find that the mismatch across occupations is more severe than across prefectures and the original Cobb-Douglas mismatch index is underestimated.