We analyze state-level matching efficiency in the Indian labor market using stochastic frontier analysis. The key contribution of this research is the estimation of matching efficiency at the state level because the estimates can be used for a state-level measure of labor market conditions.
Next, we explore the relation between estimated matching efficiency and population density (or labor market flexibility). The results show that matching efficiency is heterogeneous across states with considerable variation in accordance with the regional diversity in India.
However, we find that there is no relationship between the estimated matching efficiency and the well-known labor market conditions of interest. The correlations are either close to zero or not statistically significant, suggesting that other regional diversity may affect matching efficiency in India.