The Thick Market Effect on Local Unemployment Rate Fluctuations

37 Pages Posted: 18 May 2005 Last revised: 27 Sep 2010

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Qinghua Zhang

Peking University - Guanghua School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

This paper studies how the thick market effect influences local unemployment rate fluctuations. The paper presents a model to demonstrate that the average matching quality improves as the number of workers and firms increases. Unemployed workers accumulate in a city until the local labor market reaches a critical minimum size, which leads to cyclical fluctuations in the local unemployment rates. Since larger cities attain the critical market size more frequently, they have shorter unemployment cycles, lower peak unemployment rates, and lower mean unemployment rates. Our empirical tests are consisten with the predictions of the model. In particular, we find that an increase of two standard deviations in city size shortens the unemployment cycles by about 0.72 months, lowers the peak unemployment rates by 0.33 percentage points, and lowers the mean unemployment rates by 0.16 percentage points.

Suggested Citation

Gan, Li and Zhang, Qinghua, The Thick Market Effect on Local Unemployment Rate Fluctuations (April 2005). NBER Working Paper No. w11248. Available at SSRN: https://ssrn.com/abstract=697173

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Qinghua Zhang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
24
Abstract Views
662
PlumX Metrics