Towards an Evolutionary Interpretation of Aggregate Labor Market Regularities

In this paper, we present an agent-based, evolutionary, model of output- and labor-market dynamics. Firms produce a homogeneous, perishable, good under constant returns to scale using labor only. Workers are skill-homogeneous and buy the good spending all their wage. Labor productivities are firm-specific and change stochastically due to technical progress. Both firms and workers hold wage expectations which are adaptively revised on the base of observed market dynamics. A key feature of the model is an explicit microfoundation of the processes of: (i) matching between firms and workers; (ii) worker search; (iii) wage setting; (iv) endogenous formation of aggregate demand; (v) endogenous price formation. We also allow for selection of firms on the basis of their revealed competitiveness. Montecarlo simulations show that the model is able to jointly reproduce Beveridge, Wage and Okun's curves under quite broad behavioral and institutional settings. The system generates endogenously Okun's coefficients greater than one even if individual firms employ constant returns to labor technologies. Simulations also indicate that statistically detectable shifts in Okun's and Beveridge curves emerge as the result of changes in institutional, behavioral, and technological parameters. Finally, the model generates sharp predictions about how system parameters affect aggregate performance and its volatility