Working Paper Series,
Uppsala University, Department of Economics

Abstract: This paper studies the probability of filling a vacancy, how it varies with the number of unemployed and number of vacancies in the local labor market, and what impact it has on employment. A greater availability of unemployed workers should make it easier for a firm to fill a vacancy but more vacancies at other firms should make it more difficult, due to the congestion effect. I use monthly panel data for all local labor markets in Sweden from 1992-2011. The results suggest that unemployment has a weak positive effect on the probability of filling a vacancy, while the number of vacancies in the local labor market has a significant and robust negative effect. Simulations of a theoretical model, with parameters based on the estimation, show economically significant effects of shocks to the number of vacancies on employment dynamics, while shocks to the number of unemployed are not very important. Matching frictions are more important for employment during booms than during recessions.

Keywords: Vacancies; Unemployment; Matching; Labor demand; Employment dynamics; Business cycle

JEL-codes: E24; E39; J23; J63; J64

51 pages, October 29, 2012

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