Agglomeration, job flows and unemployment

This paper examines how job flows and unemployment vary across regions in the context of a New Economic Geography (NEG) model with equilibrium employment. The in-migration that results from agglomeration economies leads to higher rates of both job creation and job destruction. In-migration also leads to lower rates of unemployment suggesting that the regional effects of job creation on unemployment dominate those of job destruction, a result consistent with empirical evidence. Since higher rates of job destruction correspond to higher productivity the results demonstrate that a NEG model can provide a microfoundation for labor market pooling.