NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Spatial Equilibrium with Unemployment and Wage Bargaining: Theory and Estimation

Paul Beaudry, David A. Green, Benjamin M. Sand

NBER Working Paper No. 19118
Issued in June 2013
NBER Program(s):   EFG   LS

In this paper, we present a spatial equilibrium model where search frictions hinder the immediate reallocation of workers both within and across local labour markets. Because of the frictions, firms and workers find themselves in bilateral monopoly positions when determining wages. Although workers are not at each instant perfectly mobile across cities, in the baseline model we assume that workers flows are sufficient to equate expected utility across markets. We use the model to explore the joint determination of wages, unemployment, house prices and city size (or migration). A key role of the model is to clarify conditions under which this type of spatial equilibrium setup can be estimated. We then use U.S. data over the period 1970-2007 to explore the fit of model and it quantitative properties of the model. Our main goal is to highlight forces that influence spatial equilibria at 10 year intervals.

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Document Object Identifier (DOI): 10.3386/w19118

Published: Beaudry, Paul & Green, David A. & Sand, Benjamin M., 2014. "Spatial equilibrium with unemployment and wage bargaining: Theory and estimation," Journal of Urban Economics, Elsevier, vol. 79(C), pages 2-19. citation courtesy of

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