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Unemployment, Participation and Market Size

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  • Godfrey Keller
  • Kevin Roberts
  • Margaret Stevens

Abstract

We construct an equilibrium random matching model of the labour market, with endogenous market participation and a general matching technology that allows for market size effects: the job-finding rate for workers and the incentives for participation change with the level of unemployment. In comparison to standard models with constant returns to scale in matching, agent behaviour is more complex - the model generates plausible joint dynamics of employment, unemployment and participation with heterogeneity in search behaviour for workers with different degrees of attachment to the labour market. Techniques are developed to reduce the dimensionality of the problem to establish local and global stability; a complicating factor is the possibility of multiple equilibria, welfare-ranked by market size. A Hosios-type condition internalises search externalities.

Suggested Citation

  • Godfrey Keller & Kevin Roberts & Margaret Stevens, 2007. "Unemployment, Participation and Market Size," Economics Series Working Papers 362, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:362
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    References listed on IDEAS

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    More about this item

    Keywords

    Unemployment; Participation; Job Search; Matching Function; Returns to Scale; Multiple Equilibria; Stability; Coordination; Search Externalities;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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