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Frictional unemployment, bargaining, and agglomeration

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  • Xinmeng Li

    (Tohoku University)

  • Dao-Zhi Zeng

    (Tohoku University)

Abstract

This paper examines how matching elasticity and labor bargaining power affect industrial agglomeration in an open economy with frictional labor markets. The analysis is based on a footloose capital model of two symmetric regions with a single industry and immobile labor. Unemployment is generated by a Diamond–Mortensen–Pissarides-type search and matching mechanism. We find that the agglomeration force caused by search frictions in the labor market may be strong enough to break the symmetric equilibrium when the matching elasticity with respect to job vacancies is large and/or labor bargaining power is strong. Matching elasticity is crucial for determining the configuration of economic geography.

Suggested Citation

  • Xinmeng Li & Dao-Zhi Zeng, 2022. "Frictional unemployment, bargaining, and agglomeration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 68(1), pages 151-179, February.
    • Handle: RePEc:spr:anresc:v:68:y:2022:i:1:d:10.1007_s00168-021-01072-z
    DOI: 10.1007/s00168-021-01072-z
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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