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Inefficient Equilibrium Unemployment in a Duocentric Economy with Matching Frictions

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  • Lehmann, Etienne

    ()
    (CRED, Université Panthéon Assas Paris 2)

  • Montero Ledezma, Paola L.

    ()
    (IRES, Université catholique de Louvain)

  • Van der Linden, Bruno

    ()
    (IRES, Université catholique de Louvain)

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 are 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7828.

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Length: 43 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7828

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

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  1. 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.
  2. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(455), pages 266-91, April.
  3. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, number 9780521698221, 9.
  4. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  5. Ch. Pissarides., 2011. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 1.
  6. Edward L. Glaeser, 2007. "Do Regional Economies Need Regional Coordination?," Levine's Bibliography 321307000000000917, UCLA Department of Economics.
  7. 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, vol. 49(3), pages 1067-1089, 08.
  8. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  9. Peter Rupert & Etienne Wasmer, 2009. "Housing and the Labor Market: Time to Move and Aggregate Unemployment," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  10. Kuhn, Peter J. & Mansour, Hani, 2011. "Is Internet Job Search Still Ineffective?," IZA Discussion Papers 5955, Institute for the Study of Labor (IZA).
  11. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  12. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  13. Zenou, Yves, 2009. "Urban search models under high-relocation costs. Theory and application to spatial mismatch," Labour Economics, Elsevier, vol. 16(5), pages 534-546, October.
  14. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2009. "Efficiency in a Search and Matching Model with Endogenous Participation," IZA Discussion Papers 4097, Institute for the Study of Labor (IZA).
  15. Zenou, Yves, 2009. "Search in cities," European Economic Review, Elsevier, vol. 53(6), pages 607-624, August.
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