Location, search costs and youth unemployment: A randomized trial of transport subsidies in Ethiopia

Do high costs of search affect the labour market outcomes of young job seekers living far away from the centre of cities? I randomly assign temporary and non-fungible transport subsidies to unemployed youth living in spatially dislocated areas of Addis Ababa, Ethiopia. Lowering transport costs increases the intensity of job search (during and after treatment), and increases the likelihood of finding permanent employment by 6 percentage points in the short run. Analysis of weekly phone call data show that search activity declines over time but the subsidies prevent this from happening in the treatment group. The subsidies reduce participation in temporary and informal work, suggesting an important role for alternative sources of income to support job seekers. I explain these results with a dynamic model of job search with savings, cash constraints and monetary search costs. The predictions of the model are quantitatively consistent with the estimated impacts on increased job search activity, and in turn the rates at which jobs are found. These results suggest that the cost of transport in large cities can lead to frictions in the matching of firms and workers and reinforce spatial inequality.