The thick market effect on local unemployment rate fluctuations
This paper explores the relationship between city size and the pattern of unemployment rate fluctuations. We present a model of the local labor market in which in a thicker market, when more workers are looking for jobs and more job openings are available, the matching probability between jobs and workers is higher. Workers incur search cost if they actively search for for jobs. A higher matching probability makes searching for jobs more desirable. Unemployed workers accumulate in a local market until the market reaches a critical size such that the expected wage is higher than the search cost. Since a given shock produces more unemployed workers in a larger city during a time period, it takes less time for a larger city to reach the critical size described above. As a consequence, the model predicts: (1)Unemployment rates are lower in larger cities. (2) The length of unemployment cycles decreases as city size increases. (3) The peak unemployment rate is negatively correlated with city size. Our empirical analysis utilizes data that covers 295 PMSAs in the U.S. over the years 1981--1997. After controlling for the effects of industry composition and risk diversification, we find that city size has a significantly negative effect on the mean unemployment rate. In particular, if city size increases by two standard deviations, the unemployment rate will be lowered by roughly a half percentage point. We also find that larger cities have shorter unemployment cycles. In particular, the unemployment cycle will be shortened by roughly one month if city size increases by two standard deviations. Finally, we find shallower recessions for larger cities. The peak unemployment rates are lower by .3 percentage points if the city size increases by two standard deviations. All these empirical results are consistent with the predictions of the model.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ciccone, Antonio & Hall, Robert E, 1996.
"Productivity and the Density of Economic Activity,"
American Economic Review,
American Economic Association, vol. 86(1), pages 54-70, March.
- Antonio Ciccone & Robert E. Hall, 1995. "Productivity and the density of economic activity," Economics Working Papers 120, Department of Economics and Business, Universitat Pompeu Fabra.
- Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
- Robert Shimer, 1999.
"The Impact of Young Workers on the Aggregate Labor Market,"
NBER Working Papers
7306, National Bureau of Economic Research, Inc.
- Robert Shimer, 2001. "The Impact of Young Workers on the Aggregate Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 969-1007.
- Corbae, D. & Ouliaris, S. & Phillips, P.C.B., 1997.
"Band Spectral Regression with Trending Data,"
97-09, University of Iowa, Department of Economics.
- Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
- Duranton, Gilles & Puga, Diego, 2003.
"Microfoundations of Urban Agglomeration Economies,"
CEPR Discussion Papers
4062, C.E.P.R. Discussion Papers.
- Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
- Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
- Marianne Baxter & Robert G. King, 1999.
"Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series,"
The Review of Economics and Statistics,
MIT Press, vol. 81(4), pages 575-593, November.
- Tom Doan, "undated". "BKFILTER: RATS procedure to implement band pass filter using Baxter-King method," Statistical Software Components RTS00026, Boston College Department of Economics.
- Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
- Wilson, Paul W., 1988. "Wage variation resulting from staggered work hours," Journal of Urban Economics, Elsevier, vol. 24(1), pages 9-26, July.
- Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-899, October.
- Alperovich Gershon, 1993. "City Size and the Rate and Duration of Unemployment: Evidence from Israeli Data," Journal of Urban Economics, Elsevier, vol. 34(3), pages 347-357, November.
- Francis X. Diebold & Glenn D. Rudebusch, 1988.
"A nonparametric investigation of duration dependence in the American business cycle,"
Working Paper Series / Economic Activity Section
90, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X & Rudebusch, Glenn D, 1990. "A Nonparametric Investigation of Duration Dependence in the American Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 596-616, June.
- Dale T. Mortensen & Christopher A. Pissarides, 1993.
"Job Creation and Job Destruction in the Theory of Unemployment,"
CEP Discussion Papers
dp0110, Centre for Economic Performance, LSE.
- Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
- Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
- Steve J. Davis & John Haltiwanger, 1991.
"Gross job creation, gross job destruction and employment reallocation,"
Working Paper Series, Macroeconomic Issues
91-5, Federal Reserve Bank of Chicago.
- Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
- Steve J. Davis & John Haltiwanger, 1991. "Gross Job Creation, Gross Job Destruction and Employment Reallocation," NBER Working Papers 3728, National Bureau of Economic Research, Inc.
- P. Diamond, 1980.
"Aggregate Demand Management in Search Equilibrium,"
268, Massachusetts Institute of Technology (MIT), Department of Economics.
- Curtis J. Simon, 1988. "Frictional Unemployment and the Role of Industrial Diversity," The Quarterly Journal of Economics, Oxford University Press, vol. 103(4), pages 715-728.
- Edward L. Glaeser & David C. Mare, 1994.
"Cities and Skills,"
NBER Working Papers
4728, National Bureau of Economic Research, Inc.
- Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
- George R. Neumann & Robert H. Topel, 1991. "Employment Risk, Diversification, and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1341-1365.
- Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:133:y:2006:i:1:p:127-152. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.