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The purpose of this paper is to explore the matching process before and after the Great Recession in the Netherlands. The Dutch case is interesting because it is characterised by increasing matching efficiency.

This paper uses data from 2001 to 2014 to study the Dutch labour market matching process accounting for the three labour market states and their heterogeneities.

The elasticity of hires with respect to the short-term employed was significant, positive and countercyclical, while elasticities relating to new entrants were procyclical. The matching function (MF) displays constant returns to scale (CRTS) when using an alternative labour supply (LS) measure that includes the short-term employed as jobseekers. The findings are at odds with the idea of mismatch and a shortage of skills. Search frictions for employers were lower and vacancies were filled faster. This can be related to the fact that in a loose labour market context with increasing short-term employment, employers increase their hiring of employed workers which generates negative externalities on unemployed.

The implications concern the specification of the MF and the CRTS assumption when using unemployment as a LS measure.