Matching across Space: Evidence from Finland

Abstract. This paper takes a matching approach to local labour markets in Finland. The monthly data comprise 120 Local Labour Office areas over a 12 year period between January 1991 and August 2002. The basic matching function is extended to account for spatial spillovers across borders. The role of population density in the matching process is also examined. According to the results, there is a congestion effect among job seekers in the local labour markets, which is further strengthened by spatial spillovers. The results also indicate that job seekers from neighbouring areas cause additional heterogeneity in the matching process in densely populated areas, which decreases the matching efficiency in these areas.