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Inefficient Equilibrium Unemployment in a Duocentric Economy with Matching Frictions

  • Lehmann, Etienne

    ()

    (CRED, Université Panthéon Assas Paris 2)

  • Montero Ledezma, Paola L.

    ()

    (IRES, Université catholique de Louvain)

  • Van der Linden, Bruno

    ()

    (IRES, Université catholique de Louvain)

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 are 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7828.

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Length: 43 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7828
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  1. 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.
  2. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  3. 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.
  4. Zenou, Yves, 2007. "Search in Cities," CEPR Discussion Papers 6197, C.E.P.R. Discussion Papers.
  5. Edward L. Glaeser, 2007. "Do Regional Economies Need Regional Coordination?," Levine's Bibliography 321307000000000917, UCLA Department of Economics.
  6. Peter Rupert & Etienne Wasmer, 2009. "Housing and the Labor Market: Time to Move and Aggregate Unemployment," Sciences Po publications info:hdl:2441/5l6uh8ogmqi, Sciences Po.
  7. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics 4460, London School of Economics and Political Science, LSE Library.
  8. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  9. repec:cup:cbooks:9780521875387 is not listed on IDEAS
  10. Ramon Marimon & Fabrizio Zilibotti, 1997. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," NBER Working Papers 6038, National Bureau of Economic Research, Inc.
  11. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  12. Peter Kuhn & Hani Mansour, 2014. "Is Internet Job Search Still Ineffective?," Economic Journal, Royal Economic Society, vol. 124(581), pages 1213-1233, December.
  13. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  14. Albrecht, James & Navarro, Lucas & Vroman, Susan, 2010. "Efficiency in a search and matching model with endogenous participation," Economics Letters, Elsevier, vol. 106(1), pages 48-50, January.
  15. repec:cup:cbooks:9780521698221 is not listed on IDEAS
  16. 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.
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