Friction Costs and the Chain of Vacancies Problem: A Novel Vacancy Multiplier Solution

ObjectivesA key criticism of applying the friction cost approach (FCA) to productivity estimation is its focus on a single period. A more accurate estimate worker absence requires consideration chain secondary vacancies arising from opening new primary vacancy. Currently, empirical evidence this almost absent. We suggest an original empirically costs that include vacancies.MethodsThe vacancy multiplier based labor market flows and transition probabilities between states employment, unemployment, economic inactivity. It summed infinite geometric series using common ratio et – probability employed person filling job in given year. report multipliers for 30 European countries 2011-2019.ResultsThe average across Europe 2.21 (standard deviation [SD] = 0.40) 2019, meaning every created increased by factor 2.21. The equivalent 1.99 (SD 0.37) 2011 2019. Romania had lowest country-specific (1.11 2011), Greece highest (4.51 2011).ConclusionsOur results highlight extent underestimation current FCA costs, comprise resource future researchers, provide implementable formula compute other countries.