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Inefficient equilibrium unemployment in a duocentric economy with matching frictions

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  • Etienne LEHMANN

    ()
    (CRED (TEPP) University Panthéon-Assas Paris 2 and CREST)

  • Paola L. MONTERO LEDEZMA

    ()
    (Stockholm University and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Bruno VAN DER LINDEN

    ()
    (FNRS and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This article examines unemployment disparities and efficiency in a densely populated economy with two job centers and workers distributed between them. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In equilibrium, there exists a unique threshold location where job-seekers are indifferent between job centers. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. Their decisions over job-search is thus typically not optimal and hence the equilibrium unemployment rates are inefficient. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations exercises suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages and net output.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2013033.

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Length: 41
Date of creation: 10 Dec 2013
Date of revision:
Handle: RePEc:ctl:louvir:2013033

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Keywords: Spatial mismatch; commuting; urban unemployment; externality; United States;

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  1. Marimon, Ramon & Zilibotti, Fabrizio, 1998. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Seminar Papers, Stockholm University, Institute for International Economic Studies 661, Stockholm University, Institute for International Economic Studies.
  2. Christopher A. Pissarides, 2007. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," CEP Discussion Papers dp0839, Centre for Economic Performance, LSE.
  3. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  4. Zenou, Yves, 2009. "Urban search models under high-relocation costs. Theory and application to spatial mismatch," Labour Economics, Elsevier, Elsevier, vol. 16(5), pages 534-546, October.
  5. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  6. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  7. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2010. "Efficiency in a search and matching model with endogenous participation," Economics Letters, Elsevier, Elsevier, vol. 106(1), pages 48-50, January.
  8. Rupert, Peter & Wasmer, Etienne, 2012. "Housing and the labor market: Time to move and aggregate unemployment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(1), pages 24-36.
  9. Bruno Decreuse, 2008. "Choosy Search And The Mismatch Of Talents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 1067-1089, 08.
  10. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(4), pages 949-72, October.
  11. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2409, C.E.P.R. Discussion Papers.
  12. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521698221.
  13. Kuhn, Peter J. & Mansour, Hani, 2011. "Is Internet Job Search Still Ineffective?," IZA Discussion Papers 5955, Institute for the Study of Labor (IZA).
  14. Zenou, Yves, 2007. "Search in Cities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6197, C.E.P.R. Discussion Papers.
  15. Edward L. Glaeser, 2007. "Do Regional Economies Need Regional Coordination?," Levine's Bibliography 321307000000000917, UCLA Department of Economics.
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