Regional Equilibrium Unemployment Theory at the Age of the Internet

46 Pages Posted: 7 May 2015

See all articles by Vanessa Lutgen

Vanessa Lutgen

Catholic University of Louvain (UCL)

Bruno Van der Linden

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2015

Abstract

This paper studies equilibrium unemployment in a two-region economy with matching frictions, where workers and jobs are free to move and wages are bargained over. Job-seekers choose between searching locally or searching in both regions. Search-matching externalities are amplified by the latter possibility and by the fact that some workers can simultaneously receive a job offer from each region. The rest of the framework builds upon Moretti (2011). Increasing the matching effectiveness out of the region of residence has an ambiguous impact on unemployment rates. While it reduces the probability of remaining unemployed, it also decreases labor demand because of a lower acceptance rate. We characterize the optimal allocation and conclude that the Hosios condition is not sufficient to restore efficiency. A numerical exercise indicates that the loss in net output is non negligible and rising in the matching effectiveness in the other region.

Keywords: matching, non-segmented labor markets, spatial equilibrium, regional economics, unemployment differentials

JEL Classification: J610, J640, R130, R230

Suggested Citation

Lutgen, Vanessa and Van der Linden, Bruno, Regional Equilibrium Unemployment Theory at the Age of the Internet (April 30, 2015). CESifo Working Paper Series No. 5326. Available at SSRN: https://ssrn.com/abstract=2603560

Vanessa Lutgen (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Bruno Van der Linden

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales ( email )

3, Place Montesquieu
Louvain-la-Neuve, 1348
Belgium

HOME PAGE: http://perso.uclouvain.be/bruno.vanderlinden/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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