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Towards an Evolutionary Interpretation of Aggregate Labor Market Regularities

In this paper, we present an agent-based, evolutionary, model of output- and labor-market dynamics. Firms produce a homogeneous, perishable, good under constant returns to scale using labor only. Workers are skill-homogeneous and buy the good spending all their wage. Labor productivities are firm-specific and change stochastically due to technical progress. Both firms and workers hold wage expectations which are adaptively revised on the base of observed market dynamics. A key feature of the model is an explicit microfoundation of the processes of: (i) matching between firms and workers; (ii) worker search; (iii) wage setting; (iv) endogenous formation of aggregate demand; (v) endogenous price formation. We also allow for selection of firms on the basis of their revealed competitiveness. Montecarlo simulations show that the model is able to jointly reproduce Beveridge, Wage and Okun's curves under quite broad behavioral and institutional settings. The system generates endogenously Okun's coefficients greater than one even if individual firms employ constant returns to labor technologies. Simulations also indicate that statistically detectable shifts in Okun's and Beveridge curves emerge as the result of changes in institutional, behavioral, and technological parameters. Finally, the model generates sharp predictions about how system parameters affect aggregate performance and its volatility

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 84.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:84
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  11. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
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  15. Masanao Aoki, 2003. "A Simple Quantity Adjustment Model of Economic Fluctuations and Growth," UCLA Economics Online Papers 232, UCLA Department of Economics.
  16. Anthony E. Smith & Yves Zenou, 2002. "Online Appendix to "A Discrete-Time Stochastic Model of Job Matching"," Technical Appendices zenou02, Review of Economic Dynamics.
  17. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  18. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
  19. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
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  23. Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008, March.
  24. van Schaik, A.B.T.M. & de Groot, H.L.F., 1995. "Unemployment and endogenous growth," Discussion Paper 1995-75, Tilburg University, Center for Economic Research.
  25. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
  26. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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  30. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, June.
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  32. Melanie Cao & Shouyong Shi, 2000. "Coordination, matching, and wages," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1009-1033, November.
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  34. Peter Flaschel & Göran Kauermann & Willi Semmler, 2007. "Testing Wage And Price Phillips Curves For The United States," Metroeconomica, Wiley Blackwell, vol. 58(4), pages 550-581, November.
  35. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
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