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The Thick Market Effect on Local Unemployment Rate Fluctuations

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  • Li Gan
  • Qinghua Zhang

Abstract

This paper studies how the thick market effect influences local unemployment rate fluctuations. The paper presents a model to demonstrate that the average matching quality improves as the number of workers and firms increases. Unemployed workers accumulate in a city until the local labor market reaches a critical minimum size, which leads to cyclical fluctuations in the local unemployment rates. Since larger cities attain the critical market size more frequently, they have shorter unemployment cycles, lower peak unemployment rates, and lower mean unemployment rates. Our empirical tests are consisten with the predictions of the model. In particular, we find that an increase of two standard deviations in city size shortens the unemployment cycles by about 0.72 months, lowers the peak unemployment rates by 0.33 percentage points, and lowers the mean unemployment rates by 0.16 percentage points.

Suggested Citation

  • Li Gan & Qinghua Zhang, 2005. "The Thick Market Effect on Local Unemployment Rate Fluctuations," NBER Working Papers 11248, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11248 Note: LS
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    Cited by:

    1. Li Gan & Qinghua Zhang, 2013. "Market Thickness and the Impact of Unemployment on Housing Market Outcomes," NBER Working Papers 19564, National Bureau of Economic Research, Inc.
    2. Gan, Li & Li, Qi, 2016. "Efficiency of thin and thick markets," Journal of Econometrics, Elsevier, vol. 192(1), pages 40-54.
    3. FU, Shihe & DONG, Xiaofang & CHAI, Guojun, 2010. "Industry specialization, diversification, churning, and unemployment in Chinese cities," China Economic Review, Elsevier, vol. 21(4), pages 508-520, December.
    4. Schaeffer, Peter V. & Gebremedhin, Tesfa G., 2009. "Expected Time to Employment as a Function of Labor Market Size: A Theoretical Note," The Review of Regional Studies, Southern Regional Science Association, vol. 39(3), pages 287-295.
    5. Marusca De Castris & Guido Pellegrini, 2015. "Agglomeration Effects On Regional Unemployment In Europe," Working Papers 0715, CREI Università degli Studi Roma Tre, revised 2015.
    6. Wheeler, Christopher H., 2008. "Local market scale and the pattern of job changes among young men," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 101-118, March.
    7. Li Gan & Qinghua Zhang, 2006. "The Thick Market Effect on Housing Markets Transactions," NBER Working Papers 12134, National Bureau of Economic Research, Inc.
    8. Philip J. Cook & Jens Ludwig & Sudhir A. Venkatesh & Anthony A. Braga, 2005. "Underground Gun Markets," Working Papers id:245, eSocialSciences.
    9. Coulson, N. Edward & Fisher, Lynn M., 2009. "Housing tenure and labor market impacts: The search goes on," Journal of Urban Economics, Elsevier, vol. 65(3), pages 252-264, May.
    10. Herz, Benedikt, 2017. "Specific Human Capital and Wait Unemployment," MPRA Paper 76777, University Library of Munich, Germany.
    11. Peter Schaeffer & Tesfa Gebremedhin, 2004. "Labor Market Size and Unemployment Duration: A Theoretical Note," Working Papers Working Paper 2004-08, Regional Research Institute, West Virginia University.
    12. André Mollick, 2008. "What explains unemployment in US–Mexican border cities?," The Annals of Regional Science, Springer;Western Regional Science Association, pages 169-182.
    13. Li, Shuo & Tu, Yundong, 2016. "n-consistent density estimation in semiparametric regression models," Computational Statistics & Data Analysis, Elsevier, pages 91-109.
    14. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, number 8355, June.
    15. Sainan Jin & Yukako Ono & Qinghua Zhang, 2007. "Demand volatility and the lag between the growth of temporary and permanent employment," Working Paper Series WP-07-19, Federal Reserve Bank of Chicago.
    16. Yang, Guangliang & Li, Lixing & Fu, Shihe, 2017. "Do Rural Migrants Benefit from Labor Market Agglomeration Economies? Evidence from Chinese Cities," MPRA Paper 80713, University Library of Munich, Germany.
    17. repec:rri:wpaper:200408 is not listed on IDEAS
    18. Alessandro Gavazza, 2011. "The Role of Trading Frictions in Real Asset Markets," American Economic Review, American Economic Association, pages 1106-1143.
    19. Jeffrey A. Groen, 2005. "Occupation-Specific Human Capital and Local Labor Markets," Working Papers 376, U.S. Bureau of Labor Statistics.
    20. Zhang, Qinghua, 2007. "A micro-foundation of local business cycles," Regional Science and Urban Economics, Elsevier, vol. 37(5), pages 568-601, September.

    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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