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A Search Model Of Unemployment And Firm Dynamics

In: Industry And Labor Dynamics The Agent-Based Computational Economics Approach

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  • MATTEO RICHIARDI

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

Abstract

An urn-ball probabilistic model of the labor market is developed. Agents can be employed, (voluntary or involuntary) 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.

Suggested Citation

  • Matteo Richiardi, 2004. "A Search Model Of Unemployment And Firm Dynamics," World Scientific Book Chapters, in: Roberto Leombruni & Matteo Richiardi (ed.), Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 7, pages 107-128, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812702258_0007
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    Cited by:

    1. M. Neugart, 2004. "Endogenous Matching Functions: An Agent-Based Computational Approach," World Scientific Book Chapters, in: Roberto Leombruni & Matteo Richiardi (ed.), Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 6, pages 90-106, World Scientific Publishing Co. Pte. Ltd..
    2. Damdinsuren, Erdenebulgan & Zaharieva, Anna, 2023. "Expectation formation and learning in the labour market with on-the-job search and Nash bargaining," Labour Economics, Elsevier, vol. 81(C).
    3. Neugart, Michael, 2006. "Labor market policy evaluation with an agent-based model," MPRA Paper 4726, University Library of Munich, Germany.
    4. Matteo Richiardi, 2006. "Toward a Non-Equilibrium Unemployment Theory," Computational Economics, Springer;Society for Computational Economics, vol. 27(1), pages 135-160, February.
    5. André Veski & Kaire Põder, 2018. "Zero-intelligence agents looking for a job," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(3), pages 615-640, October.
    6. Neugart, Michael, 2008. "Labor market policy evaluation with ACE," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 418-430, August.
    7. Michael Neugart & Matteo G. Richiardi, 2012. "Agent-based models of the labor market," LABORatorio R. Revelli Working Papers Series 125, LABORatorio R. Revelli, Centre for Employment Studies.

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    More about this item

    Keywords

    Simulation; Agent-Based; Computational Economics; Labor; Industrial Dynamics; Innovation; Cluster; Firm Behavior;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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