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Does Space Affect Search? A Theory of Local Unemployment

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  • Wasmer, Etienne
  • Zenou, Yves

Abstract

The spatial dispersion of economic agents is an immediate determinant of informational imperfections. We investigate how this dispersion creates search frictions and thus rationing. For that, we develop a model of local labour markets in which workers' search efficiency is negatively affected by distance to jobs. Workers' location in a city is endogenous and reflects a trade-off between commuting costs and the surplus associated with search. Different configurations emerge in equilibrium: notably, the unemployed workers may reside far away or close to the jobs. The labour market equilibrium itself depends crucially on these urban equilibria since the aggregate information about economic opportunities depends on the shape of the city. We show that there exists a unique and stable market equilibrium in which both land and labour markets are solved for simultaneously. We then decompose unemployment in two parts: the level reached if all agents were residing in the same location and an additional term due to the spatial dispersion.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2157.

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Date of creation: May 1999
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Handle: RePEc:cpr:ceprdp:2157

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Related research

Keywords: Equilibrium Unemployment; Local Labour Markets; Matching; Urban Land Use Equilibrium;

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References

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  1. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Holzer, Harry J, 1987. "Informal Job Search and Black Youth Unemployment," American Economic Review, American Economic Association, vol. 77(3), pages 446-52, June.
  3. Rogers, Cynthia L., 1997. "Job Search and Unemployment Duration: Implications for the Spatial Mismatch Hypothesis," Journal of Urban Economics, Elsevier, vol. 42(1), pages 109-132, July.
  4. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  5. Richard Arnott, 1997. "Economic Theory and the Spatial Mismatch Hypothesis," Boston College Working Papers in Economics 390., Boston College Department of Economics.
  6. Seater, John J, 1979. "Job Search and Vacancy Contacts," American Economic Review, American Economic Association, vol. 69(3), pages 411-19, June.
  7. H Jayet, 1990. "Spatial search processes and spatial interaction: 1. Sequential search, intervening opportunities, and spatial search equilibrium," Environment and Planning A, Pion Ltd, London, vol. 22(5), pages 583-599, May.
  8. Crampton, Graham R., 1999. "Urban labour markets," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 39, pages 1499-1557 Elsevier.
  9. Robert S. Chirinko, 1981. "An Empirical Investigation of the Returns to Job Search," Discussion Papers 452, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  11. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-18, December.
  12. Barron, John M & Gilley, Otis W, 1981. "Job Search and Vacancy Contacts: Note," American Economic Review, American Economic Association, vol. 71(4), pages 747-52, September.
  13. Zax, J.S. & Kain, J.F., 1991. "Moving to the Suburbs: Do Relocating Companies Leave Their Black Employees Behind?," Harvard Institute of Economic Research Working Papers 1562, Harvard - Institute of Economic Research.
  14. O'Regan, Katherine M. & Quigley, John M., 1992. "Family Networks and Youth Access to Jobs," University of California Transportation Center, Working Papers qt0b96s4b3, University of California Transportation Center.
  15. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  16. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
  17. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  18. Smith, T. E. & Zenou, Y., . "Dual labor markets, urban unemployment, and multicentric cities," CORE Discussion Papers RP -1283, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S111-43, June.
  20. Ihlanfeldt, Keith R., 1997. "Information on the Spatial Distribution of Job Opportunities within Metropolitan Areas," Journal of Urban Economics, Elsevier, vol. 41(2), pages 218-242, March.
  21. Ihlanfeldt, Keith R & Sjoquist, David L, 1990. "Job Accessibility and Racial Differences in Youth Employment Rates," American Economic Review, American Economic Association, vol. 80(1), pages 267-76, March.
  22. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 949-72, October.
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Citations

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Cited by:
  1. Rupert, Peter & Stancanelli, Elena G. F. & Wasmer, Etienne, 2009. "Commuting, Wages and Bargaining Power," IZA Discussion Papers 4510, Institute for the Study of Labor (IZA).
  2. Brueckner, Jan & Thisse, Jacques-François & Zenou, Yves, 2000. "Local Labour Markets, Job Matching and Urban Location," CEPR Discussion Papers 2612, C.E.P.R. Discussion Papers.
  3. Hazans, Mihails, 2003. "Commuting in the Baltic States: Patterns, determinants and gains," ZEI Working Papers B 02-2003, ZEI - Center for European Integration Studies, University of Bonn.
  4. Mihails Hazans, 2004. "Does Commuting Reduce Wage Disparities?," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 35(3), pages 360-390.
  5. Zenou, Yves, 1999. "Urban Unemployment, Agglomeration and Transportation Policies," CEPR Discussion Papers 2309, C.E.P.R. Discussion Papers.

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