Matching refers to how efficiently supply and demand for labour meet in the labour market. This Economic Commentary analyses how efficiently the unemployed and job vacancies are matched in the Swedish labour market.^[3] In addition to the number of matches in the labour market, that is matching efficiency, match quality is also important for a well-functioning labour market. Good match quality means that people are employed in jobs that make the best use of their skills. Match quality is difficult to measure. In the research literature, employee tenure and wage growth are often used as measures of match quality. If the quality of the match is high, the employee will stay in his or her job for a long time and enjoy good wage development. Studies on match quality require individual level data and are not analysed in this Economic Commentary. See, for example, Fredriksson et al. (2018) and Corragio et al. (2023) for research on match quality using Swedish data. See also Håkanson (2014) for earlier estimates of matching efficiency and Böhlmark and Waisman (2024) for an analysis of matching efficiency 1992–2022 using data from the Swedish Public Employment Service.

As it takes time for employers and potential employees to come into contact, both unemployment and vacant jobs exist simultaneously. Matching efficiency is affected by the economic situation but also by institutional factors such as the functioning of the education system and the design of unemployment insurance. Matching is more efficient if the unemployed have the education and experience sought by employers and if the labour force is mobile both occupationally and geographically.

Improved matching efficiency contributes to shorter periods of unemployment and thus to lower equilibrium unemployment.^[4] Equilibrium unemployment is the level of unemployment considered attainable under the prevailing institutional conditions without the rest of the economy becoming unbalanced. The level may vary over time. This means that potential employment and output in the economy will be higher. Similarly, poorer matching efficiency leads to longer periods of unemployment, higher equilibrium unemployment and lower potential employment and output. One sign of poor matching efficiency is that unemployment is high at the same time as there are many job vacancies in the labour market. Another sign is that employers are finding it difficult to recruit people with the right skills.

The efficiency of labour market matching cannot be measured directly but it can be assessed using various indicators and estimates based on the job-finding rate of the unemployed and the number of vacancies and unemployed persons.