Mismatch unemployment in the Finnish labour market

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School of Business | Master's thesis
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Date

2016

Department

Taloustieteen laitos
Department of Economics

Major/Subject

Economics
Kansantaloustiede

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Language

en

Pages

56

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Abstract

In this paper, I study mismatch between job-seekers and vacancies across sectors in the Finnish labour market between 2006 and the beginning of 2015. The amount of lost hires caused by the imbalance between job-seekers and vacancies is measured by a mismatch index, which allows us to construct an efficient allocation of job-seekers across sectors. Further, this efficient allocation is used to define a counterfactual un-employment rate to measure the magnitude of mismatch. Studying the causes of unemployment is increasingly important especially in Finland, where the share of long-term unemployed job-seekers has shown a steady increase af-ter the financial crisis. This paper presents mismatch theory as one possible explana-tion for the prolonged unemployment in the Finnish labour market. This study utilizes the labour market data from Local Labour Offices made available by the Ministry of Employment and the Economy. The rich panel data set consists of monthly information on job seekers, vacancies and hires between 2006 and April 2015. The data is compiled both in geographical and occupational dimensions to allow the estimation of a mismatch index across both sectors. Mismatch measurements indicate possible gains to be made in hires by allocating job-seekers efficiently. Spatially lost hires vary monthly between 5 and 7 percent when sec-tor-specific efficiencies are considered. Occupational mismatch indices show wider variation ranging monthly from 2 to 14 percent depending on the level of disaggrega-tion. Mismatch peaked especially sharply across occupations as the financial crisis burst in 2008. According to the approximation of counterfactual unemployment rates, mismatch explains around one fifth of the aggregate unemployment rate. Most nota-bly, the results indicate that mismatch is currently increasing on all dimensions. In line with previous studies from the US and Sweden, mismatch is more severe across occu-pations than regions.

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Keywords

matching model, mismatch, unemployment, labour market, mismatch index, labour economics, työttömyys, työmarkkinat, työvoiman kohtaanto

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https://urn.fi/URN:NBN:fi:aalto-201602261433

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