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Local Unemployment and Specialization

Author

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  • Ritter, Peer
  • Walz, Uwe

Abstract

Recent empirical work has shown that there exists a negative relation between wages and unemployment estimated across regions. Our model recognizes the spatial dimension of the so-called wage-curve by using a Hotelling/Salop framework in which a finite number of firms compete for heterogeneous workers. We incorporate this set-up into an efficiency-wage framework. In setting wages, firms perceive their influence on the wage-unemployment trade-off, thus taking the employment decisions of their competitors as an externality. The model predicts that in larger regions, with firms demanding more specialized labour, workers receive higher wages and face lower unemployment.

Suggested Citation

  • Ritter, Peer & Walz, Uwe, 1998. "Local Unemployment and Specialization," CEPR Discussion Papers 1870, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1870
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    Citations

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    Cited by:

    1. Harald Badinger & Thomas Url, 2002. "Determinants of regional unemployment: some evidence from Austria," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 977-988.
    2. Amend, Elke & Herbst, Patrick, 2002. "Human capital formation under product market uncertainty," ERSA conference papers ersa02p092, European Regional Science Association.

    More about this item

    Keywords

    Efficiency Wages; local unemployment; Specialization and heterogeneity of labour;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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