The Network Composition of Aggregate Unemployment

57 Pages Posted: 20 Jan 2016 Last revised: 9 Nov 2016

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

Alan Turing Institute - 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 5, 2016

Abstract

We develop a theory of unemployment in which workers search for jobs through a network of firms, the labor flow network (LFN). 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, modulating labor flows and generating aggregate unemployment. This theory provides new micro-foundations for the aggregate matching function, the Beveridge curve, wage dispersion, and the employer-size premium. Using employer-employee matched records, we study the effect of the LFN topology through a new concept: 'firm-specific unemployment'.

Keywords: aggregate unemployment, labor flow networks, job search

Suggested Citation

Axtell, Robert and Guerrero, Omar A and Lopez, Eduardo, The Network Composition of Aggregate Unemployment (January 5, 2016). Saïd Business School WP 2016-02. Available at SSRN: https://ssrn.com/abstract=2718244 or http://dx.doi.org/10.2139/ssrn.2718244

Robert Axtell (Contact Author)

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

4400 University Drive
375 Research Hall
Fairfax, VA 22030
United States

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

Santa Fe Institute - Economics ( email )

1399 Hyde Park Rd
Santa Fe, NM 87501
United States

Omar A Guerrero

Alan Turing Institute - Alan Turing Institute ( email )

96 Euston Road
London, NW1 2DB
United Kingdom

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
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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