Regional Unemployment Persistence and Agglomeration Effects

36 Pages Posted: 14 Oct 2021

See all articles by Pierre Deschamps

Pierre Deschamps

Stockholm University - Swedish Institute for Social Research (SOFI)

Guillaume Wilemme

University of Leicester - Department of Economics, Finance and Accounting

Date Written: October 1, 2021

Abstract

Regional unemployment rates are strongly persistent. Using a search-and-matching model of a local labor market with firm and worker migration, we study how agglomeration effects amplify labor demand shocks. When firms disappear in the model, productivity decreases which discourages incoming firms and slows regional recovery. Agglomeration effects amplify the magnitude and persistence of the unemployment response. We simulate the model to determine the critical factors responsible for the amplification. Amplification is stronger when firm migration reacts strongly to local conditions, and when labor migration reacts weakly. This implies that fixed wages greatly amplify the effect of agglomeration economies on regional shocks.

Keywords: agglomeration economies, mobility, regional unemployment, search frictions

JEL Classification: J21, J61, L26, R13, R23

Suggested Citation

Deschamps, Pierre and Wilemme, Guillaume, Regional Unemployment Persistence and Agglomeration Effects (October 1, 2021). Available at SSRN: https://ssrn.com/abstract=3941989 or http://dx.doi.org/10.2139/ssrn.3941989

Pierre Deschamps

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

Guillaume Wilemme (Contact Author)

University of Leicester - Department of Economics, Finance and Accounting ( email )

United Kingdom

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