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Scale effects in markets with search

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Reduced-form tests of scale effects in markets with search, based on aggregate matching functions, may miss important scale effects at the micro level, because of the reactions of job searchers. We estimate a semi-structural model on a British sample of unemployed people, testing for scale effects on the offer arrival rate and the wage offer distribution. We find scale effects in wage offers but not in offer arrival rates. We also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches, so aggregate matching functions are unaffected by scale.

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