Frictional Unemployment and the Role of Industrial Diversity.

Since many individuals are immobile between city labor markets in t he short run, the industrial structure of cities plays an important role in determining the national rate of unemployment. This paper argues that a city's frictional unemployment rate will be lower the more industrially diversified is the city; that is, the more evenly distributed is employment across industries. The empirical work on ninety-one large standard metropolitan statistical areas strongly supports the hypothesis. The difference in frictional unemployment rates between the twenty most and least diverse cities i s estimated at about 2.4 percentage points. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.