Vacancy Dynamics and Labor Market Efficiency in the Dutch Labor Market

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Abstract
This paper focuses on cyclical and regional variations in vacancy dynamics in labor markets with persistent imbalances between demand and supply. In particular the so‐called matching approach is used to investigate labor market efficiency across regions and over the business cycle. In this matching approach the relationship between the flow of filled vacancies and regional stocks of unemployed job seekers and vacant jobs is specified in a “search production” function. The matching approach is applied to the Dutch labor market, which is characterized by strong disequilibria and persistent regional differences in unemployment and vacancy rates. To explore the development of these regional imbalances from a demand side perspective, the dynamic structure of regional data on vacancies is analyzed over the business cycle. The movements of vacancy duration and the change in the vacancy stock over time appear to be similar across Dutch regions. Moreover, an investigation of the structural causes of regional variations in vacancy duration via shift‐share analysis makes clear that regional differences in sectoral composition of unfilled vacancies do not contribute to regional differences in vacancy duration in the period 1989–93. Estimation results of a matching model reveal that there are no region‐specific differences in labor market efficiency to produce filled vacancies. The ratio of vacancies to unemployment appears to be the critical determinant of the matching process in the Dutch regions. Another general (non region‐specific) finding is that the estimated labor market efficiency increases during recessionary and recovery periods while it decreases during an economic boom.