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A Natural Rate Model of Frictional and Long-term Unemployment

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  • Ian P. King

Abstract

A simple labor market with spatial separation and Markov production shocks is presented. In the stationary equilibrium, some workers are frictionally unemployed and others are long-term unemployed. The amounts of frictional and long-term unemployment at each location depend on its recent history of productivity shocks, producing a local hysteresis effect. Changes in the parameters affect the equilibrium aggregate amounts of frictional and long-term unemployment differently. In particular, economies with larger moving costs will have more long-term and total unemployment, but less frictional unemployment. This finding is broadly consistent with recently reported stylized facts.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 23 (1990)
Issue (Month): 3 (August)
Pages: 523-45

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Handle: RePEc:cje:issued:v:23:y:1990:i:3:p:523-45

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Cited by:
  1. King, Ian & Welling, Linda, 1995. "Search, unemployment, and growth," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 499-507, June.
  2. Fernando Alvarez & Robert Shimer, 2008. "Search and Rest Unemployment," NBER Working Papers 13772, National Bureau of Economic Research, Inc.

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