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A Natural Rate Model of Frictional and Long-term Unemployment


  • Ian P. King


A simple labor market with spatial separation and Markov production shocks is presented. In the stationary equilibrium, some workers are frictionally unemployed and others are long-term unemployed. The amounts of frictional and long-term unemployment at each location depend on its recent history of productivity shocks, producing a local hysteresis effect. Changes in the parameters affect the equilibrium aggregate amounts of frictional and long-term unemployment differently. In particular, economies with larger moving costs will have more long-term and total unemployment, but less frictional unemployment. This finding is broadly consistent with recently reported stylized facts.

Suggested Citation

  • Ian P. King, 1990. "A Natural Rate Model of Frictional and Long-term Unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 523-545, August.
  • Handle: RePEc:cje:issued:v:23:y:1990:i:3:p:523-45

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    References listed on IDEAS

    1. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-574, November.
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    Cited by:

    1. Anja Bauer & Ian King, 2015. "The Hartz Reforms, the German Miracle, and the Reallocation Puzzle," Discussion Papers Series 550, School of Economics, University of Queensland, Australia.
    2. Fernando Alvarez & Robert Shimer, 2011. "Search and Rest Unemployment," Econometrica, Econometric Society, vol. 79(1), pages 75-122, January.
    3. Herz, Benedikt, 2017. "Specific Human Capital and Wait Unemployment," MPRA Paper 76777, University Library of Munich, Germany.
    4. King, Ian & Welling, Linda, 1995. "Search, unemployment, and growth," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 499-507, June.
    5. Bauer, Anja, 2015. "Reallocation patterns across occupations," IAB Discussion Paper 201526, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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