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Frictional and Long-Term Unemployment in a Spatially Separated Economy

Ian King ()

Working Paper from Economics Department, Queen's University

Abstract: This paper separates the "natural" rate of unemployment into two components: frictional and long-term unemployment. A simple labour market model with spatial separation and Markov production shocks is presented. The existence of a stationary equilibrium is proved, and its properties are characterized. In equilibrium, high productivity regions experience frictional unemployment but no long-term unemployment. The converse holds for low productivity regions. The amount of unemployment in each region is determined by recent productive history. The model also describes the dynamics of population density in each location.

Pages: 35 pages
Date: 1988
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