A SEARCH MODEL OF UNEMPLOYMENT AND FIRM DYNAMICS

Matteo Richiardi

Chapter 7 in Industry and Labor Dynamics:The Agent-Based Computational Economics Approach, 2004, pp 107-128 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractAn urn-ball probabilistic model of the labor market is developed. Agents can be employed, (voluntary or involuntary) unemployed or entrepreneurs. The analytical long run equilibrium probabilities for each state and the matching function are derived. In equilibrium, a higher reservation wage increases the number of start-ups, but has an overall negative impact on the unemployment rate. A more buoyant economy (higher average growth rate and higher average wages) is shown to be associated with a lower unemployment rate. Higher start-up costs discourage entrepreneurship and increase unemployment. More active search behavior leads first to a decrease in the unemployment rate, and then to a small increase, due to increased coordination failure induced by the higher number of applications sent by job seekers. The out-of-equilibrium dynamics are investigated through an agent-based simulation, which also provides results on firm demography. Important empirical regularities such as the Beveridge and the Okun curve are recovered. Finally, the simulation model is used to investigate departures from maximizing individual behavior and the effects of more realistic assumptions about profits and the business cycle.

Keywords: Simulation; Agent-Based; Computational Economics; Labor; Industrial Dynamics; Innovation; Cluster; Firm Behavior (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (8)

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Journal Article: A SEARCH MODEL OF UNEMPLOYMENT AND FIRM DYNAMICS (2004)
Working Paper: A Search Model of Unemployment and Firm Dynamics (2003)
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