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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.

Suggested Citation

  • Wasmer, Etienne & Zenou, Yves, 1999. "Does Space Affect Search? A Theory of Local Unemployment," CEPR Discussion Papers 2157, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2157
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Peter Ruppert & Elena Stancanelli & Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," Annals of Economics and Statistics, GENES, issue 95-96, pages 201-220.
    2. Zenou, Yves, 2000. "Urban unemployment, agglomeration and transportation policies," Journal of Public Economics, Elsevier, vol. 77(1), pages 97-133, July.
    3. Jan K. Brueckner & Jacques-FranÁois Thisse & Yves Zenou, 2002. "Local Labor Markets, Job Matching, and Urban Location," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 155-171, February.
    4. Mihails Hazans, 2004. "Does Commuting Reduce Wage Disparities?," Growth and Change, Wiley Blackwell, vol. 35(3), pages 360-390.
    5. Hazans, Mihails, 2003. "Commuting in the Baltic States: Patterns, determinants and gains," ZEI Working Papers B 02-2003, University of Bonn, ZEI - Center for European Integration Studies.

    More about this item

    Keywords

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

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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