Frictional Unemployment on Labor Flow Networks

50 Pages Posted: 17 Jan 2016 Last revised: 3 Mar 2019

See all articles by Robert Axtell

Robert Axtell

George Mason University - Department of Computational Social Science; George Mason University - Department of Economics; Santa Fe Institute - Economics

Omar A Guerrero

The Alan Turing Institute; University College London - Department of Economics

Eduardo Lopez

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2016

Abstract

We develop an alternative theory to the aggregate matching function in which workers search for jobs through a network of firms: the labor flow network. The lack of an edge between two companies indicates the impossibility of labor flows between them due to high frictions. In equilibrium, firms' hiring behavior correlates through the network, generating highly disaggregated local unemployment. Hence, aggregation depends on the topology of the network in non-trivial ways. This theory provides new micro-foundations for the Beveridge curve, wage dispersion, and the employer-size premium. We apply our model to employer-employee matched records and find that network topologies with Pareto-distributed connections cause disproportionately large changes on aggregate unemployment under high labor supply elasticity.

Keywords: Labor flows; networks; unemployment; aggregation; job search

Suggested Citation

Axtell, Robert and Guerrero, Omar A and Lopez, Eduardo, Frictional Unemployment on Labor Flow Networks (January 15, 2016). Saïd Business School WP 2016-02, Available at SSRN: https://ssrn.com/abstract=2716265 or http://dx.doi.org/10.2139/ssrn.2716265

Robert Axtell

George Mason University - Department of Computational Social Science ( email )

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George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Santa Fe Institute - Economics ( email )

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Santa Fe, NM 87501
United States

Omar A Guerrero (Contact Author)

The Alan Turing Institute ( email )

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London, NW1 2DB
United Kingdom

University College London - Department of Economics ( email )

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30 Gordon Street
London, WC1H 0AX
United Kingdom

Eduardo Lopez

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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