Unemployment and market size

Bibliographic Data

ID9720212
AuthorsMartin Ellison (0000-0002-7769-5774, University of Oxford and Bank of Finland), Godfrey Keller (University of Oxford), Kevin Roberts (University of Oxford), Margaret Stevens (University of Oxford)
Year2014
Volume124
Issue575
Pages119-148
Publication date2014-03-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12043
OpenAlexW2158805186
LanguageEN
Citations received2
References cited44

Without strong empirical support, labour market matching models typically assume constant returns to scale in matching. We construct a tractable equilibrium random matching model with a general matching technology, introducing market size effects: the job‐finding rate varies with unemployment. Stable steady‐states may occur in regions of increasing or decreasing returns, and multiple equilibria are welfare‐ranked by market size. While the standard model relies on high‐frequency shocks to the steady state to explain the co‐movement of unemployment and job‐finding, locally decreasing returns in matching generate plausible adjustment dynamics and slower convergence. Lastly, an extension of the Hosios condition internalises search externalities

Constant (computer programming · Convergence (economics · Econometrics · Economics · Externality · Macroeconomics · Matching (statistics · Microeconomics · Returns to scale · Scale (ratio · Statistics · Steady state (chemistry · Unemployment · Welfare · Computer Science · Economic Policies and Impacts · Economic theories and models · Labor market dynamics and wage inequality · Mathematics

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