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

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  • Alan Manning
  • Barbara Petrongolo

Abstract

This paper uses data on very small UK geographies to investigate the effective size of local labour markets. Our approach treats geographic space as continuous, as opposed to a collection of nonoverlapping administrative units, thus avoiding problems of mismeasurement of local labour 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 labour 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 labour markets are relatively 'local', local development policies are fairly ineffective in raising the local unemployment outflow, because labour markets overlap, and the associated ripple effects in applications largely dilute the impact of local stimulus across space.

Suggested Citation

  • Alan Manning & Barbara Petrongolo, 2011. "How Local Are Labour Markets? Evidence from a Spatial Job Search Model," CEP Discussion Papers dp1101, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1101
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    References listed on IDEAS

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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, May.
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    Citations

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    Cited by:

    1. Belot, Michele & Kircher, Philipp & Muller, Paul, 2015. "Providing Advice to Job Seekers at Low Cost: An Experimental Study on On-Line Advice," Working Papers in Economics 637, University of Gothenburg, Department of Economics.
    2. Jean Flemming, 2018. "Costly Commuting and the Job Ladder," 2018 Meeting Papers 100, Society for Economic Dynamics.
    3. Lutgen, Vanessa & Van der Linden, Bruno, 2015. "Regional equilibrium unemployment theory at the age of the Internet," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 50-67.
    4. repec:eee:juecon:v:104:y:2018:i:c:p:1-15 is not listed on IDEAS
    5. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2015. "Commuting, Migration and Local Employment Elasticities," CEP Discussion Papers dp1385, Centre for Economic Performance, LSE.
    6. Girum Abebe & Margaret S. McMillan & Michel Serafinelli, 2018. "Foreign Direct Investment and Knowledge Diffusion in Poor Locations: Evidence from Ethiopia," NBER Working Papers 24461, National Bureau of Economic Research, Inc.
    7. Clémence Berson, 2016. "Local labor markets and taste-based discrimination," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-21, December.
    8. Azar, José & Marinescu, Ioana E. & Steinbaum, Marshall & Taska, Bledi, 2018. "Concentration in US Labor Markets: Evidence from Online Vacancy Data," IZA Discussion Papers 11379, Institute for the Study of Labor (IZA).
    9. Dolton, Peter & Bondibene, Chiara Rosazza & Stops, Michael, 2015. "Identifying the employment effect of invoking and changing the minimum wage: A spatial analysis of the UK," Labour Economics, Elsevier, vol. 37(C), pages 54-76.
    10. Axtell, Robert L. & Guerrero, Omar A. & López, Eduardo, 2016. "The Network Composition of Aggregate Unemployment," MPRA Paper 68962, University Library of Munich, Germany.
    11. Benoît Schmutz & Modibo Sidibé, 2017. "Frictional Labor Mobility," Working Papers 2017-48, Center for Research in Economics and Statistics.
    12. Elisa Guglielminetti & Rafael Lalive & Philippe Ruh & Etienne Wasmer, 2015. "Spatial search strategies of job seekers and the role of unemployment insurance," Sciences Po publications info:hdl:2441/4n249fe9fu9, Sciences Po.
    13. Andrea Morescalchi, 2016. "A new career in a new town. Job search methods and regional mobility of unemployed workers," ERSA conference papers ersa16p307, European Regional Science Association.
    14. Longhi, Simonetta, 2017. "Spatial-Ethnic Inequalities: The Role of Location in the Estimation of Ethnic Wage Differentials," IZA Discussion Papers 11073, Institute for the Study of Labor (IZA).
    15. Haller, Peter & Heuermann, Daniel F., 2016. "Job search and hiring in local labor markets: Spillovers in regional matching functions," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 125-138.
    16. Amior, Michael, 2015. "Why are higher skilled workers more mobile geographically?: the role of the job surplus," LSE Research Online Documents on Economics 61279, London School of Economics and Political Science, LSE Library.
    17. Michael Amior, 2015. "Why are Higher Skilled Workers More Mobile Geographically? The Role of the Job Surplus," CEP Discussion Papers dp1338, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    Job search; local labour markets; location-based policies; ripple effects;

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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