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How Local Are Labor Markets? Evidence from a Spatial Job Search Model

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  • Manning, Alan

    ()
    (London School of Economics)

  • Petrongolo, Barbara

    ()
    (Queen Mary, University of London)

Abstract

This paper uses data on very small UK geographies to investigate the effective size of local labor markets. Our approach treats geographic space as continuous, as opposed to a collection of non-overlapping administrative units, thus avoiding problems of mismeasurement of local labor markets encountered in previous work. We develop a theory of job search across space that allows us to estimate a matching process with a very large number of areas. Estimates of this model show that the cost of distance is relatively high – the utility of being offered a job decays at exponential rate around 0.3 with distance (in km) to the job – so that labor markets are indeed quite 'local'. Also, workers are discouraged from applying to jobs in areas where they expect relatively strong competition from other jobseekers. The estimated model replicates fairly accurately actual commuting patterns across neighbourhoods, although it tends to underpredict the proportion of individuals who live and work in the same ward. Finally, we find that, despite the fact that labor markets are relatively 'local', local development policies are fairly ineffective in raising the local unemployment outflow, because labor markets overlap, and the associated ripple effects in applications largely dilute the impact of local stimulus across space.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6178.

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Length: 50 pages
Date of creation: Nov 2011
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Handle: RePEc:iza:izadps:dp6178

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Keywords: job search; local labor markets; location-based policies; ripple effects;

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  1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  2. Matthew J. Notowidigdo, 2011. "The Incidence of Local Labor Demand Shocks," NBER Working Papers 17167, National Bureau of Economic Research, Inc.
  3. Edward L. Glaeser & Joshua D. Gottlieb, 2008. "The Economics of Place-Making Policies," NBER Working Papers 14373, National Bureau of Economic Research, Inc.
  4. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
  5. Matias Busso & Jesse Gregory & Patrick Kline, 2011. "Assessing the Incidence and Efficiency of a Prominent Place Based Policy," Working Papers 11-07, Center for Economic Studies, U.S. Census Bureau.
  6. Simon Burgess & Stefan Profit, 2001. "Externalities in the matching of workers and firms in Britain," LSE Research Online Documents on Economics 20130, London School of Economics and Political Science, LSE Library.
  7. Leah Platt Boustan & Robert A. Margo, 2007. "Race, Segregation, and Postal Employment: New Evidence on Spatial Mismatch," NBER Working Papers 13462, National Bureau of Economic Research, Inc.
  8. Coles, Melvyn G & Smith, Eric, 1994. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," CEPR Discussion Papers 966, C.E.P.R. Discussion Papers.
  9. Eleonora Patacchini & Yves Zenou, 2007. "Spatial dependence in local unemployment rates," Journal of Economic Geography, Oxford University Press, vol. 7(2), pages 169-191, March.
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