A Model of Regional Contraction and Unemployment

Barry McCormick and Stephen Sheppard

Economic Journal, 1992, vol. 102, issue 411, 366-77

Abstract: A two-region economy is studied in which one region has a competitive labor market whereas the other has a congested labor market in which locating a job uses resources. Workers loosing jobs in the congested region choose between migration followed by an immediate job offer and searching in the congested region. Steady-state decline of the labor force in the congested region is characterized together with equilibrium unemployment rates. Higher unemployment benefits may increase the rate of contraction of the congested market if the consequence for job matching outweighs that for migration conditional upon a given level of unemployment. Copyright 1992 by Royal Economic Society.

Date: 1992
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