Inefficient equilibrium unemployment in a duocentric economy with matching frictions

Etienne Lehmann (), Paola Liliana Montero Ledezma () and Bruno Van der Linden

No 2013033, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

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 equilibrium, there exists a unique threshold location where job-seekers are indifferent between job centers. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. Their decisions over job-search is thus typically not optimal and hence the equilibrium unemployment rates are inefficient. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations exercises suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages and net output.

Keywords: Spatial mismatch; commuting; urban unemployment; externality; United States (search for similar items in EconPapers)
JEL-codes: J64 R13 R23 (search for similar items in EconPapers)
Pages: 41
Date: 2013-12-10
New Economics Papers: this item is included in nep-dge, nep-geo, nep-lab and nep-ure
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Related works:
Working Paper: Inefficient Equilibrium Unemployment in a Duocentric Economy with Matching Frictions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2013033

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