Frictional unemployment, bargaining, and agglomeration

Xinmeng Li () and Dao-Zhi Zeng ()
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Xinmeng Li: Tohoku University

The Annals of Regional Science, 2022, vol. 68, issue 1, No 7, 179 pages

Abstract: Abstract This paper examines how matching elasticity and labor bargaining power affect industrial agglomeration in an open economy with frictional labor markets. The analysis is based on a footloose capital model of two symmetric regions with a single industry and immobile labor. Unemployment is generated by a Diamond–Mortensen–Pissarides-type search and matching mechanism. We find that the agglomeration force caused by search frictions in the labor market may be strong enough to break the symmetric equilibrium when the matching elasticity with respect to job vacancies is large and/or labor bargaining power is strong. Matching elasticity is crucial for determining the configuration of economic geography.

JEL-codes: F12 F16 J64 R12 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00168-021-01072-z

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