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A Search Model Of Unemployment And Firm Dynamics

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Author Info
MATTEO RICHIARDI () (LABORatorio Riccardo Revelli Centre for Employment Studies, via Real Collegio 30, 10024 Moncalieri (Torino), Italy)

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Abstract

An urn-ball probabilistic model of the labor market is developed. Agents can be employed (voluntarily or involuntarily) unemployed, or entrepreneurs. The analytical long-run equilibrium probabilities for each state and the matching function are derived. In equilibrium, a higher reservation wage increases the number of start-ups, but has an overall negative impact on the unemployment rate. A more buoyant economy (higher average growth rate and higher average wages) is shown to be associated with a lower unemployment rate. Higher start-up costs discourage entrepreneurship and increase unemployment. More active search behavior leads first to a decrease in the unemployment rate, and then to a small increase, due to increased coordination failure induced by the higher number of applications sent by job seekers. The out-of-equilibrium dynamics are investigated through an agent-based simulation, which also provides results on firm demography. Important empirical regularities such as the Beveridge and the Okun curve are recovered. Finally, the simulation model is used to investigate departures from maximizing individual behavior and the effects of more realistic assumptions about profits and the business cycle.

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Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Advances in Complex Systems.

Volume (Year): 07 (2004)
Issue (Month): 02 ()
Pages: 203-221
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Handle: RePEc:wsi:acsxxx:v:07:y:2004:i:02:p:203-221

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Related research
Keywords: Unemployment; start-up; search; simulation;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Neugart, Michael, 2006. "Labor market policy evaluation with an agent-based model," MPRA Paper 4726, University Library of Munich, Germany. [Downloadable!]
  2. Matteo Richiardi, 2006. "Toward a Non-Equilibrium Unemployment Theory," Computational Economics, Springer, vol. 28(4), pages 421-446, November. [Downloadable!] (restricted)
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