The Network Composition of Aggregate Unemployment

Axtell, Robert, Guerrero, Omar A. and López, Eduardo (2016) The Network Composition of Aggregate Unemployment. Said Business School Working Paper 2016-02.

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We develop an alternative framework 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 the Beveridge curve, wage dispersion, and the employer-size premium. Using employer-employee matched records, we find that the empirical topology of the network, in conjunction with the supply elasticity, may be a major contributor of aggregate unemployment.

Item Type: Oxford Saïd Research Paper
Keywords: Labor flows; networks; unemployment; aggregation; job search
Subject(s): Complexity
Centre: CABDyN Complexity Centre
Date Deposited: 19 Jan 2016 15:19
Last Modified: 14 Dec 2016 15:05

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