Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110814
Authors: 
Lutgen, Vanessa
Van der Linden, Bruno
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5326
Abstract: 
This paper studies equilibrium unemployment in a two-region economy with matching frictions, where workers and jobs are free to move and wages are bargained over. Job-seekers choose between searching locally or searching in both regions. Search-matching externalities are amplified by the latter possibility and by the fact that some workers can simultaneously receive a job offer from each region. The rest of the framework builds upon Moretti (2011). Increasing the matching effectiveness out of the region of residence has an ambiguous impact on unemployment rates. While it reduces the probability of remaining unemployed, it also decreases labor demand because of a lower acceptance rate. We characterize the optimal allocation and conclude that the Hosios condition is not sufficient to restore efficiency. A numerical exercise indicates that the loss in net output is non negligible and rising in the matching effectiveness in the other region.
Subjects: 
matching
non-segmented labor markets
spatial equilibrium
regional economics
unemployment differentials
JEL: 
J61
J64
R13
R23
Document Type: 
Working Paper

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