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Do Commuting Subsidies Drive Workers to Better Firms?

Author

Listed:
  • David R. Agrawal
  • Elke J. Jahn
  • Eckhard Janeba

Abstract

An unappreciated potential benefit of commuting subsidies is that they can expand the choice set of feasible job opportunities in a way that facilitates a better job match quality. Variations in wages and initial commuting distances, combined with major reforms of the commuting subsidy formula in Germany, generate worker-specific variation in commuting subsidy changes. We study the effect of changes in these subsidies on a worker’s position in the wage distribution. Increases in the generosity of commuting subsidies induce workers to switch to higher-paying jobs with longer commutes. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality.

Suggested Citation

  • David R. Agrawal & Elke J. Jahn & Eckhard Janeba, 2024. "Do Commuting Subsidies Drive Workers to Better Firms?," CESifo Working Paper Series 10981, CESifo.
    • Handle: RePEc:ces:ceswps:_10981
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    Cited by:

    1. Mateus Rodrigues & Daniel Da Mata & Vitor Possebom, 2024. "Free Public Transport: More Jobs without Environmental Damage?," Papers 2410.06037, arXiv.org.
    2. David Card & Jesse Rothstein & Moises Yi, 2024. "Reassessing the Spatial Mismatch Hypothesis," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 221-225, May.
    3. Eike Alexander Baumgart & Kay Blaufus & Frank Hechtner, 2025. "The tax treatment of commuting expenses and job-related mobility: insights from a randomized survey experiment," European Journal of Law and Economics, Springer, vol. 60(1), pages 33-53, August.
    4. Vidar Christiansen & Odd E. Nygård, 2024. "Tax Treatment of Commuter Cost," CESifo Working Paper Series 11080, CESifo.
    5. De Borger, Bruno & Mulalic, Ismir & Rouwendal, Jan, 2025. "Productivity and wage effects of an exogenous improvement in transport infrastructure: Accessibility and the Great Belt Bridge," Regional Science and Urban Economics, Elsevier, vol. 114(C).

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    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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