Frictional unemployment on labor flow networks

Robert L. Axtell, Omar A. Guerrero*, Eduardo López

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

7 Citations (Scopus)

Abstract

We develop an alternative theory to the aggregate matching function in which workers search for jobs through a network of firms: the labor flow network. The lack of an edge between two companies indicates the impossibility of labor flows between them due to high frictions. In equilibrium, firms’ hiring behavior correlates through the network, generating highly disaggregated local unemployment. Hence, aggregation depends on the topology of the network in non-trivial ways. This theory provides new micro-foundations for the Beveridge curve, wage dispersion, and the employer-size premium. We apply our model to employer-employee matched records and find that network topologies with Pareto-distributed connections cause disproportionately large changes on aggregate unemployment under high labor supply elasticity.

Original languageEnglish
Pages (from-to)184-201
Number of pages18
JournalJournal of Economic Behavior and Organization
Volume160
DOIs
Publication statusPublished - 1 Apr 2019
MoE publication typeA1 Journal article-refereed

Keywords

  • Aggregation
  • Job search
  • Labor flows
  • Networks
  • Unemployment

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