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High Relocation Costs in Search-Matching Models: Theory and Application to Spatial Mismatch

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Author Info
Yves Zenou () (Research Institute of Industrial Economics, GAINS, CEPR and IZA)

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Abstract

We develop a standard search-matching model in which mobility costs are so high that it is too costly for workers to relocate when a change in their employment status occurs. We show that, in equilibrium, wages increase with distance to jobs and commuting costs because firms need to compensate the transportation cost difference between the employed and unemployed workers at each location in the city. We also show that the equilibrium land rent is negatively affected by the unemployment benefit because an increase in the latter induce firms to create less jobs, which, in turn, reduces the competition in the land market. We then use this model to provide a mechanism for the observed spatial mismatch between where black workers live and where jobs are. Because blacks and whites differ by their contact rate, we show that the former reside far away from jobs, have higher unemployment rates and lower wages. This is because the housing market amplifies the negative effects of the labor market by creating additional frictions.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2739.

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Length: 32 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2739

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Related research
Keywords: search frictions; spatial frictions; efficiency; spatial mismatch hypothesis;

Other versions of this item:

Find related papers by JEL classification:
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities and Races; Non-labor Discrimination
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
R14 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Land Use Patterns

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jos Van Ommeren & Michiel Van Leuvensteijn, 2005. "New Evidence of the Effect of Transaction Costs on Residential Mobility," Journal of Regional Science, Blackwell Publishing, vol. 45(4), pages 681-702. [Downloadable!] (restricted)
    Other versions:
  2. Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do the Poor Live in Cities?," NBER Working Papers 7636, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Patacchini, Eleonora & Zenou, Yves, 2005. "Spatial mismatch, transport mode and search decisions in England," Journal of Urban Economics, Elsevier, vol. 58(1), pages 62-90, July. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. GOBILLON Laurent & SELOD Harris & ZENOU Yves, 2007. "The mechanisms of spatial mismatch," Research Unit Working Papers 0701, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
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  6. Holzer, Harry J, 1988. "Search Method Use by Unemployed Youth," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 1-20, January. [Downloadable!] (restricted)
    Other versions:
  7. GOBILLON Laurent & SELOD Harris, 2007. "The effects of segregation and spatial mismatch on unemployment: evidence from France," Research Unit Working Papers 0702, Laboratoire d'Economie Appliquee, INRA. [Downloadable!]
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  8. Alan Manning, 2003. "The Real Thin Theory: Monopsony in Modern Labour Markets," CEP Discussion Papers dp0564, Centre for Economic Performance, LSE. [Downloadable!]
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  9. Wasmer, Etienne & Zenou, Yves, 2002. "Does City Structure Affect Job Search and Welfare?," Journal of Urban Economics, Elsevier, vol. 51(3), pages 515-541, May. [Downloadable!] (restricted)
  10. Jos van Ommeren & Arno van der Vlist & Peter Nijkamp, 2002. "Transport-Related Fringe Benefits," Tinbergen Institute Discussion Papers 02-063/3, Tinbergen Institute. [Downloadable!]
  11. Sato, Yasuhiro, 2004. "City structure, search, and workers' job acceptance behavior," Journal of Urban Economics, Elsevier, vol. 55(2), pages 350-370, March. [Downloadable!] (restricted)
  12. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September. [Downloadable!] (restricted)
  13. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD, Economics Department. [Downloadable!]
  14. Jos van Ommeren & Arno van der Vlist & Peter Nijkamp, 2006. "Transport-Related Fringe Benefits: Implications For Moving And The Journey To Work," Journal of Regional Science, Blackwell Publishing, vol. 46(3), pages 493-506. [Downloadable!] (restricted)
  15. Harris Selod & Yves Zenou, 2006. "City Structure, Job Search and Labour Discrimination: Theory and Policy Implications," Economic Journal, Royal Economic Society, vol. 116(514), pages 1057-1087, October. [Downloadable!] (restricted)
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  16. Smith, Tony E. & Zenou, Yves, 2003. "Spatial Mismatch, Search Effort and Urban Spatial Structure," IZA Discussion Papers 692, Institute for the Study of Labor (IZA). [Downloadable!]
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  17. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier. [Downloadable!] (restricted)
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  18. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. 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. [Downloadable!] (restricted)
  21. Jos Van Ommeren & Piet Rietveld, 2007. "Commuting and Reimbursement of Residential Relocation Costs," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(1), pages 51-73, January. [Downloadable!] (restricted)
  22. Seater, John J, 1979. "Job Search and Vacancy Contacts," American Economic Review, American Economic Association, vol. 69(3), pages 411-19, June. [Downloadable!] (restricted)
  23. Zax, Jeffrey S., 1991. "Compensation for commutes in labor and housing markets," Journal of Urban Economics, Elsevier, vol. 30(2), pages 192-207, September. [Downloadable!] (restricted)
  24. Madden, Janice Fanning, 1985. "Urban wage gradients: Empirical evidence," Journal of Urban Economics, Elsevier, vol. 18(3), pages 291-301, November. [Downloadable!] (restricted)
  25. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December. [Downloadable!] (restricted)
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  26. Wasmer, Etienne & Zenou, Yves, 2006. "Equilibrium search unemployment with explicit spatial frictions," Labour Economics, Elsevier, vol. 13(2), pages 143-165, April. [Downloadable!] (restricted)
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  27. Chirinko, Robert S, 1982. "An Empirical Investigation of the Returns to Job Search," American Economic Review, American Economic Association, vol. 72(3), pages 498-501, June. [Downloadable!] (restricted)
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  28. Zenou, Yves, 2003. "Efficiency Wages and Unemployment in Cities: The Case of High Relocation Costs," CEPR Discussion Papers 4058, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fougère, Denis & Pradel, Jacqueline & Roger, Muriel, 2008. "Does the Public Employment Service Affect Search Effort and Outcomes?," CEPR Discussion Papers 7095, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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