Frictional unemployment, bargaining, and agglomeration

This paper examines how matching elasticity and labor bargaining power affect industrial agglomeration in an open economy with frictional labor markets. The analysis is based on a footloose capital model of two symmetric regions with a single industry and immobile labor. Unemployment is generated by...

Full description

Saved in:
Bibliographic Details
Published inThe Annals of regional science Vol. 68; no. 1; pp. 151 - 179
Main Authors Li, Xinmeng, Zeng, Dao-Zhi
Format Journal Article
LanguageEnglish
Published Berlin/Heidelberg Springer Berlin Heidelberg 01.02.2022
Springer Nature B.V
Subjects
Agglomeration
Bargaining
Capital
Diamond industry
Diamonds
Economic conditions
Economic geography
Economics
Economics and Finance
Efficiency
Elasticity
Employment
Environmental Economics
Equilibrium
Geography
Globalization
Job openings
Job vacancies
Labor
Labor market
Labor supply
Landscape/Regional and Urban Planning
Manufacturing
Matching
Microeconomics
Original Paper
Power
Regional/Spatial Science
Regions
Unemployment
Vacancies
Wages & salaries
Workers
Working hours
J64
R12
F16
F12
Online AccessGet full text

Cover

More Information
Summary:This paper examines how matching elasticity and labor bargaining power affect industrial agglomeration in an open economy with frictional labor markets. The analysis is based on a footloose capital model of two symmetric regions with a single industry and immobile labor. Unemployment is generated by a Diamond–Mortensen–Pissarides-type search and matching mechanism. We find that the agglomeration force caused by search frictions in the labor market may be strong enough to break the symmetric equilibrium when the matching elasticity with respect to job vacancies is large and/or labor bargaining power is strong. Matching elasticity is crucial for determining the configuration of economic geography.
ISSN:0570-1864
1432-0592
DOI:10.1007/s00168-021-01072-z