The Efficiency of the Matching Process: Exploring the Impact of Regional Employment Offices in Croatia

This paper investigates the efficiency of the matching process in Croatian labour market by estimating matching function by panel stochastic frontier estimation on a regional level using Croatian Employment Service data over the 2000-2011 period. Results suggest that the efficiency is rising over time, with great variations across regions. In order to explore these variations, structural characteristics of the labour market together with some policy variables are included into the second-stage estimation. Among structural variables the proportion of agricultural and high-skilled workers have the most important positive effect on matching efficiency, while the local unemployment rate and the share of low-skilled and workers without any experience among job-seekers have the most important negative effect. As far as policy variables are concerned, both ALMPs and the number of high-skilled employees in regional employment offices positively affect matching efficiency. Additionally, when regional income per capita is included into the model it shows positive impact on matching efficiency, indicating that demand fluctuations also affect the matching process. In order to get consistent estimates, panel stochastic frontier model transformation is applied. Preliminary results show that there is no major difference in estimated mean technical efficiency coefficients in comparison to the original panel stochastic frontier model.