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The Thick Market Effect on Local Unemployment Rate Fluctuations

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  • Li Gan
  • Qinghua Zhang

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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Bibliographic Info

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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Publication status: published as Gan, Li and Qinghua Zhang. "The Thick Market Effect on Local Unemployment Rate Fluctuations." Journal of Econometrics 133, 1 (July 2006): 127-152
Handle: RePEc:nbr:nberwo:11248

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Cited by:
  1. Christopher H. Wheeler, 2007. "Local market scale and the pattern of job changes among young men," Working Papers, Federal Reserve Bank of St. Louis 2005-033, Federal Reserve Bank of St. Louis.
  2. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8355.
  3. Li Gan & Qinghua Zhang, 2006. "The Thick Market Effect on Housing Markets Transactions," NBER Working Papers 12134, National Bureau of Economic Research, Inc.
  4. Li Gan & Qinghua Zhang, 2013. "Market Thickness and the Impact of Unemployment on Housing Market Outcomes," NBER Working Papers 19564, National Bureau of Economic Research, Inc.
  5. Coulson, N. Edward & Fisher, Lynn M., 2009. "Housing tenure and labor market impacts: The search goes on," Journal of Urban Economics, Elsevier, vol. 65(3), pages 252-264, May.
  6. Fu, Shihe & Dong, Xiaofang & Chai, Guojun, 2008. "Industry specialization, diversification, churning, and unemployment in Chinese cities," MPRA Paper 15339, University Library of Munich, Germany.
  7. Philip J. Cook & Jens Ludwig & Sudhir A. Venkatesh & Anthony A. Braga, 2005. "Underground Gun Markets," Working Papers id:245, eSocialSciences.
  8. Jeffrey A. Groen, 2005. "Occupation-Specific Human Capital and Local Labor Markets," Working Papers, U.S. Bureau of Labor Statistics 376, U.S. Bureau of Labor Statistics.
  9. Gavazza, Alessandro, 2010. "The role of trading frictions in real asset markets," MPRA Paper 25781, University Library of Munich, Germany.
  10. Peter Schaeffer & Tesfa Gebremedhin, 2004. "Labor Market Size and Unemployment Duration: A Theoretical Note," Working Papers 200408, Regional Research Institute, West Virginia University.
  11. Sainan Jin & Yukako Ono & Qinghua Zhang, 2007. "Demand volatility and the lag between the growth of temporary and permanent employment," Working Paper Series, Federal Reserve Bank of Chicago WP-07-19, Federal Reserve Bank of Chicago.
  12. Zhang, Qinghua, 2007. "A micro-foundation of local business cycles," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 37(5), pages 568-601, September.
  13. André Mollick, 2008. "What explains unemployment in US–Mexican border cities?," The Annals of Regional Science, Springer, Springer, vol. 42(1), pages 169-182, March.

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