Local Unemployment and Specialization

Peer Ritter and Uwe Walz

No 1870, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Recent empirical work has shown that there exists a negative relation between wages and unemployment estimated across regions. Our model recognizes the spatial dimension of the so-called wage-curve by using a Hotelling/Salop framework in which a finite number of firms compete for heterogeneous workers. We incorporate this set-up into an efficiency-wage framework. In setting wages, firms perceive their influence on the wage-unemployment trade-off, thus taking the employment decisions of their competitors as an externality. The model predicts that in larger regions, with firms demanding more specialized labour, workers receive higher wages and face lower unemployment.

Keywords: Efficiency Wages; local unemployment; Specialization and heterogeneity of labour (search for similar items in EconPapers)
JEL-codes: J21 J41 R23 (search for similar items in EconPapers)
Date: 1998-04
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Citations: View citations in EconPapers (2)

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