The thick market effect of local unemployment rate fluctuation
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.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
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.:
- Wheeler, Christopher H, 2001. "Search, Sorting, and Urban Agglomeration," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 879-99, October.
- 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.
- 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.
- 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.
- Tom Doan, . "BKFILTER: RATS procedure to implement band pass filter using Baxter-King method," Statistical Software Components RTS00026, Boston College Department of Economics.
- Antonio Ciccone & Robert E. Hall, 1993.
"Productivity and the Density of Economic Activity,"
NBER Working Papers
4313, National Bureau of Economic Research, Inc.
- 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, 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
- Duranton, Gilles & Puga, Diego, 2003. "Microfoundations of Urban Agglomeration Economies," CEPR Discussion Papers 4062, C.E.P.R. Discussion Papers.
- Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
- P. Diamond, 1980.
"Aggregate Demand Management in Search Equilibrium,"
268, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- 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.
- Edward L. Glaeser & David C. Mare, 1994.
"Cities and Skills,"
NBER Working Papers
4728, National Bureau of Economic Research, Inc.
- Dean Corbae & Sam Ouliaris & Peter C.B. Phillips, 1997.
"Band Spectral Regression with Trending Data,"
Cowles Foundation Discussion Papers
1163, Cowles Foundation for Research in Economics, Yale University.
- Wilson, Paul W., 1988. "Wage variation resulting from staggered work hours," Journal of Urban Economics, Elsevier, vol. 24(1), pages 9-26, July.
- Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ecm:nawm04:179. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.