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The Network Composition of Aggregate Unemployment

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  • Axtell, Robert L.
  • Guerrero, Omar A.
  • López, Eduardo

Abstract

We develop a theory of unemployment in which workers search for jobs through a network of firms, the labor flow network (LFN). The lack of an edge between two companies indicates the impossibility of labor flows between them due to high frictions. In equilibrium, firms' hiring behavior correlates through the network, modulating labor flows and generating aggregate unemployment. This theory provides new micro-foundations for the aggregate matching function, the Beveridge curve, wage dispersion, and the employer-size premium. Using employer-employee matched records, we study the effect of the LFN topology through a new concept: `firm-specific unemployment'.

Suggested Citation

  • Axtell, Robert L. & Guerrero, Omar A. & López, Eduardo, 2016. "The Network Composition of Aggregate Unemployment," MPRA Paper 68962, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68962
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregate unemployment; labor flow networks; job search;

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • D2 - Microeconomics - - Production and Organizations
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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