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The Thick Market Effect on Local Unemployment Rate Fluctuations

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Li Gan
Qinghua Zhang

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Abstract

This paper studies how the thick market effect influences local unemployment rate fluctuations. The paper presents a model to demonstrate that the average matching quality improves as the number of workers and firms increases. Unemployed workers accumulate in a city until the local labor market reaches a critical minimum size, which leads to cyclical fluctuations in the local unemployment rates. Since larger cities attain the critical market size more frequently, they have shorter unemployment cycles, lower peak unemployment rates, and lower mean unemployment rates. Our empirical tests are consisten with the predictions of the model. In particular, we find that an increase of two standard deviations in city size shortens the unemployment cycles by about 0.72 months, lowers the peak unemployment rates by 0.33 percentage points, and lowers the mean unemployment rates by 0.16 percentage points.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11248.

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Date of creation: Apr 2005
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Handle: RePEc:nbr:nberwo:11248

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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  1. Fu, Shihe & Dong, Xiaofang & Chai, Guojun, 2008. "Industry specialization, diversification, churning, and unemployment in Chinese cities," MPRA Paper 15339, University Library of Munich, Germany. [Downloadable!]
  2. André Mollick, 2008. "What explains unemployment in US–Mexican border cities?," The Annals of Regional Science, Springer, vol. 42(1), pages 169-182, March. [Downloadable!] (restricted)
  3. Philip J. Cook, 2005. "Underground Gun Markets," Working Papers id:245, esocialsciences.com. [Downloadable!]
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