Workforce Location and Equilibrium Unemployment in a Duocentric Economy with Matching Frictions

44 Pages Posted: 8 Oct 2015

See all articles by Etienne Lehmann

Etienne Lehmann

Université Paris II - Panthéon-Assas - ERMES

Paola L. Montero Ledezma

Catholic University of Louvain (UCL)

Bruno Van der Linden

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

Date Written: September 22, 2015

Abstract

This article examines unemployment disparities and efficiency in a densely populated economy with two job centers and workers distributed between them. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. With symmetric job centers, a change in the distribution of the workforce can lead to asymmetric equilibrium outcomes. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages, and net output, but cannot be the unique explanation of a substantial mismatch problem.

Keywords: spatial mismatch, commuting, urban unemployment, externality

JEL Classification: J640, R130, R230

Suggested Citation

Lehmann, Etienne and Montero Ledezma, Paola L. and Van der Linden, Bruno, Workforce Location and Equilibrium Unemployment in a Duocentric Economy with Matching Frictions (September 22, 2015). CESifo Working Paper Series No. 5506. Available at SSRN: https://ssrn.com/abstract=2670564

Etienne Lehmann

Université Paris II - Panthéon-Assas - ERMES ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

Paola L. Montero Ledezma

Catholic University of Louvain (UCL) ( email )

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

Bruno Van der Linden (Contact Author)

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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