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Inefficient equilibrium unemployment in a duocentric economy with matching frictions

  • Etienne LEHMANN

    ()

    (CRED (TEPP) University Panthéon-Assas Paris 2 and CREST)

  • Paola L. MONTERO LEDEZMA

    ()

    (Stockholm University and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Bruno VAN DER LINDEN

    ()

    (FNRS and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

This article examines unemployment disparities and efficiency in a densely populated economy with two job centers and workers distributed between them. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In equilibrium, there exists a unique threshold location where job-seekers are indifferent between job centers. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. Their decisions over job-search is thus typically not optimal and hence the equilibrium unemployment rates are inefficient. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations exercises suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages and net output.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2013033.

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Length: 41
Date of creation: 10 Dec 2013
Date of revision:
Handle: RePEc:ctl:louvir:2013033
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  1. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. mismatch of talents: Reconsidering unemployment benefits," Economics Working Papers 211, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  3. Edward L. Glaeser, 2007. "Do Regional Economies Need Regional Coordination?," Levine's Bibliography 321307000000000917, UCLA Department of Economics.
  4. Kuhn, Peter J. & Mansour, Hani, 2011. "Is Internet Job Search Still Ineffective?," IZA Discussion Papers 5955, Institute for the Study of Labor (IZA).
  5. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 949-72, October.
  6. repec:cup:cbooks:9780521875387 is not listed on IDEAS
  7. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2009. "Efficiency in a Search and Matching Model with Endogenous Participation," IZA Discussion Papers 4097, Institute for the Study of Labor (IZA).
  8. Rupert, Peter & Wasmer, Etienne, 2009. "Housing and the Labor Market: Time to Move and Aggregate Unemployment," University of California at Santa Barbara, Economics Working Paper Series qt1bv529kn, Department of Economics, UC Santa Barbara.
  9. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09.
  10. Zenou, Yves, 2009. "Urban search models under high-relocation costs. Theory and application to spatial mismatch," Labour Economics, Elsevier, vol. 16(5), pages 534-546, October.
  11. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  12. repec:cup:cbooks:9780521698221 is not listed on IDEAS
  13. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  14. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  15. Bruno Decreuse, 2008. "Choosy Search And The Mismatch Of Talents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 1067-1089, 08.
  16. Zenou, Yves, 2007. "Search in Cities," CEPR Discussion Papers 6197, C.E.P.R. Discussion Papers.
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