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Title: Big Locational Differences in Unemployment Despite High Labor Mobility
Citation Type: Miscellaneous
Publication Year: 2006
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Abstract: Despite high geographic mobility, there are big and persistent cross sectional differences in unemployment rates between U.S. regions. In this paper, I extend a competitive search model to a setting with distinct local labor markets to obtain high cross sectional volatility of unemployment in the presence of a highly mobile labor force. Using plausible economic primitives such as technology and search and moving costs, I construct a spatial model in an equilibrium setting by explicitly allowing for both net and gross mobility. One of the key issues of the local labor market dynamics is the question of who moves and who stays behind. This paper takes the first step into this direction by looking at different age groups. The model is successful in accounting for big unemployment differences across the US regions despite high labor mobility. Several counterfactual and policy experiments are conducted. As the population ages and reaches the point of no population growth, the aggregate unemployment rates for middle-aged and older workers increase by 0.34 and 0.60 percentage points, respectively. Using the model, I show that the government can effectively offset the negative impact of the aging population by subsidizing workers' moving expenses. I also find that higher unemployment benefits make local labor market adjustment much slower which, in turn, increases the aggregate unemployment. This equilibrium effect of higher unemployment benefits appears to be new in the literature. I am also able to generate the thick market effect (Shimer, 2001) without relying on multiple equilibria or increasing returns to scale in a matching technology. For the numerical solution of the stochastic dynamic equilibrium, I use the Krusell-Smith (1998) method, extending its application to a multi-sector search model.
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Authors: Lkhagvasuren, Damba
Publisher: U. of Rochester and Northwestern U.
Data Collections: IPUMS CPS
Topics: Labor Force and Occupational Structure, Migration and Immigration
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