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Towards an Evolutionary Interpretation of Aggregate Labor Market Regularities

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  • Giovanni Dosi
  • Giorgio Fagiolo
  • Roberto Gabriele

Abstract

Three well-known aggregate regularities (i.e. Beveridge, Wage, and Okun's curves) seem to provide a quite complete picture of the interplay between labor market macro-dynamics and business cycle. Nevertheless, existing theoretical literature still lacks micro-founded models which are able to jointly account for these three crucial stylized facts. In this paper, we present an agent-based, evolutionary, model trying to formalize from the bottom up individual behaviors and interactions in both product and labor markets. We describe as endogenous processes both vacancy and wage setting, as well as matching and bargaining, demand and price formation. Firms enjoy labor productivity improvements (technological progress) and are selected on the base of their revealed competitiveness (which is also affected by their hiring- and wage-setting behaviors). Simulations show that the model is able to robustly reproduce Beveridge, Wage and Okun's curves under quite broad behavioral and institutional settings. Moreover, the system generates endogenously an Okun's coefficient greater than one even if individual firms employ production functions exhibiting constant returns to labor. Montecarlo 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 quite sharp predictions about how system parameters affect aggregate performance (i.e. average GDP growth) and its volatility.

Suggested Citation

  • Giovanni Dosi & Giorgio Fagiolo & Roberto Gabriele, 2004. "Towards an Evolutionary Interpretation of Aggregate Labor Market Regularities," LEM Papers Series 2004/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2004/02
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    2. Juan Manuel Larrosa, 2016. "Agentes computacionales y análisis económico," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 18(34), pages 87-113, January-J.
    3. Peter Hans Matthews, 2004. "Who is Post-Walrasian Man?," Middlebury College Working Paper Series 0412, Middlebury College, Department of Economics.
    4. Sandra Tavares Silva & Aurora A.C. Teixeira, 2006. "An evolutionary model of firms' institutional behavior focusing on labor decisions," FEP Working Papers 227, Universidade do Porto, Faculdade de Economia do Porto.
    5. Dan Farhat, 2011. "Bookworms versus Party Animals: An Artificial Labor Market with Human and Social Capital Accumulation," Working Papers 1103, University of Otago, Department of Economics, revised May 2011.

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    More about this item

    Keywords

    Labor Markets; Dynamics; Aggregate Regularities; Beveridge Curve; Okun Curve; Wage Curve; Matching Models;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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