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Hysteresis in an Evolutionary Labor Market with Adaptive Search

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  • Leigh Tesfatsion

    (Iowa State University)

Abstract

This study undertakes a systematic experimental investigation of hysteresis (path dependency) in an agent-based computational labor market framework. It is shown that capacity asymmetries between work suppliers and employers can result in two distinct hysteresis effects, network and behavioral, when work suppliers and employers interact strategically and evolve their worksite behaviors over time. These hysteresis effects result in persistent heterogeneity in earnings and employment histories across agents who have no observable structural differences. At a more global level, these hysteresis effects are shown to result in a one-to-many mapping between treatment factors and experimental outcomes. These hysteresis effects may help to explain why excess earnings heterogeneity is commonly observed in real-world labor markets.

Suggested Citation

  • Leigh Tesfatsion, 2000. "Hysteresis in an Evolutionary Labor Market with Adaptive Search," Computational Economics 0004003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpco:0004003
    Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/; to print on HP/PostScript/; pages: 31; figures: included
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    References listed on IDEAS

    as
    1. Leigh TESFATSION, 1995. "A Trade Network Game With Endogenous Partner Selection," Economic Report 36, Iowa State University Department of Economics.
    2. McFadzean, David & Tesfatsion, Leigh, 1999. "A C++ Platform for the Evolution of Trade Networks," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 109-134, October.
    3. Tesfatsion, Leigh, 1998. "Preferential Partner Selection in Evolutionary Labor Markets: A Study in Agent-Based Computational Economics," Staff General Research Papers Archive 2048, Iowa State University, Department of Economics.
    4. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    5. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    6. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
    7. Piscitelli, Laura & Cross, Rod & Grinfeld, Michael & Lamba, Harbir, 2000. "A Test for Strong Hysteresis," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 59-78, April.
    8. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
    9. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695.
    10. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
    11. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics 0203001, University Library of Munich, Germany, revised 15 Aug 2002.
    12. Matthew Rabin & Joel L. Schrag, 1999. "First Impressions Matter: A Model of Confirmatory Bias," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 37-82.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mark Pingle & Leigh Tesfatsion, 2004. "Evolution Of Worker-Employer Networks And Behaviors Under Alternative Non-Employment Benefits: An Agent-Based Computational Study," World Scientific Book Chapters,in: Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 8, pages 129-163 World Scientific Publishing Co. Pte. Ltd..
    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. Yang, J.-H. Steffi, 2009. "Social network influence and market instability," Journal of Mathematical Economics, Elsevier, vol. 45(3-4), pages 257-276, March.
    4. Tesfatsion, Leigh, 2001. "Structure, behavior, and market power in an evolutionary labor market with adaptive search," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 419-457, March.
    5. Pingle, Mark & Tesfatsion, Leigh, 2003. "Evolution of Worker-Employer Networks and Behaviors Under Alternative Non-Employment Benefits: An Agent-Based Computational Approach," Staff General Research Papers Archive 10376, Iowa State University, Department of Economics.
    6. Chen, Shu-Heng, 2012. "Varieties of agents in agent-based computational economics: A historical and an interdisciplinary perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 1-25.
    7. Clemens Kühn & Katja Hillmann, 2016. "Rule-based modeling of labor market dynamics: an introduction," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 11(1), pages 57-76, April.

    More about this item

    Keywords

    Dynamic labor market; Hysteresis (path dependency); Networks; Endogenous Interactions; Agent-based computational economics; Evolutionary game.;

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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