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Towards a Non-Equilibrium Unemployment Theory

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  • Matteo Richiardi

Abstract

This paper presents a non-equilibrium, agent-based model of workers and firms, with on-the-job searching, endogenous entrepreneurial decisions and endogenous wage and income determination. Workers and firms are heterogeneous, and learn their strategy in the labor market. The model is able to reproduce a number of stylized facts generally accepted in labor economics and industrial organization, such as the Wage, Beveridge and Okun curve, and the skewness of wage, income and firm size distribution. Most interestingly, important stylized facts such as a negatively sloped Wage Curve and a constant returns to scale matching function emerge only out-of-equilibrium, during the adjustment processes toward the stationary state. The results stress three points. First, the use of non-equilibrium computational models allows for a more comprehensive investigation of the labor market, by considering the endogenous character of many relevant variables. Second, it may be the case that (some) of the stylized facts upon which many equilibrium models have been built may be just out-of-equilibrium properties of the real economies. Third, the joint determination of all aggregate relationships and their dependence on the equilibrium or non-equilibrium state of the system suggest to move from the investigation of empirical regularities in isolation one from the other to a joint analysis.

Suggested Citation

  • Matteo Richiardi, 2005. "Towards a Non-Equilibrium Unemployment Theory," LABORatorio R. Revelli Working Papers Series 37, LABORatorio R. Revelli, Centre for Employment Studies.
  • Handle: RePEc:cca:wplabo:37
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    References listed on IDEAS

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    Cited by:

    1. Araujo, Ricardo Azevedo & de Souza, Nathalia Almeida, 2010. "An evolutionary game theory approach to the dynamics of the labour market: A formal and informal perspective," Structural Change and Economic Dynamics, Elsevier, vol. 21(2), pages 101-110, May.

    More about this item

    Keywords

    Unemployment; Entrepreneurship; Firm demography; Simulation; Beveridge; Okun; Wage Curve.;

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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