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Endogenous Job Destruction and Job Matching in Cities

  • Zenou, Yves

    ()

    (Stockholm University)

We propose a spatial search-matching model where both job creation and job destruction are endogenous. Workers are ex ante identical but not ex post since their job can be hit by a technological shock, which decreases their productivity. They reside in a city and commuting to the job center involves both pecuniary and time costs. Thus, workers with high wages are willing to live closer to jobs to save on time commuting costs. We show that, in equilibrium, there is a one-to-one correspondence between the productivity space and the urban location space since high-productivity workers bid away low-productivity workers in order to occupy locations close to jobs. We also show that in the bargaining process, there is a spatial element in the wage setting since firms need to compensate workers for their spatial costs. Compared to the non-spatial model, the unemployment rate and the reservation productivity are lower and the job-creation rate is higher because the urban space through commuting costs and land rent create additional frictions in the labor market.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2695.

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Length: 44 pages
Date of creation: Mar 2007
Date of revision:
Publication status: published in: Journal of Urban Economics, 2009, 65 (3), 323-336
Handle: RePEc:iza:izadps:dp2695
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  2. Brueckner, J.K. & Thisse, J.-F. & Zenou, Y., 1996. "Why is central Paris rich and downtown Detroit poor ? An amenity-based theory," CORE Discussion Papers 1996065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  4. Findeisen, Sebastian & Suedekum, Jens, 2007. "Industry Churning and the Evolution of Cities: Evidence for Germany," IZA Discussion Papers 3180, Institute for the Study of Labor (IZA).
  5. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
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  7. R. Jason Faberman, 2007. "The relationship between the establishment age distribution and urban growth," Working Papers 07-18, Federal Reserve Bank of Philadelphia.
  8. Brueckner, Jan & Thisse, Jacques-François & Zenou, Yves, 2000. "Local Labour Markets, Job Matching and Urban Location," CEPR Discussion Papers 2612, C.E.P.R. Discussion Papers.
  9. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  10. Freedman, Matthew L., 2008. "Job hopping, earnings dynamics, and industrial agglomeration in the software publishing industry," Journal of Urban Economics, Elsevier, vol. 64(3), pages 590-600, November.
  11. Zenou, Yves, 2009. "Search in cities," European Economic Review, Elsevier, vol. 53(6), pages 607-624, August.
  12. Smith, Tony E. & Zenou, Yves, 2003. "Spatial mismatch, search effort, and urban spatial structure," Journal of Urban Economics, Elsevier, vol. 54(1), pages 129-156, July.
  13. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  14. Fujita,Masahisa, 1989. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521346627, November.
  15. Wasmer, Etienne & Zenou, Yves, 2002. "Does City Structure Affect Job Search and Welfare?," Journal of Urban Economics, Elsevier, vol. 51(3), pages 515-541, May.
  16. Gilles Duranton, 2007. "Urban Evolutions: The Fast, the Slow, and the Still," American Economic Review, American Economic Association, vol. 97(1), pages 197-221, March.
  17. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, number 9780521875387, November.
  18. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
  19. Small, K.A. & Gomez-Ibanez, J.A., 1996. "Urban Transportation," Papers 95-96-4, California Irvine - School of Social Sciences.
  20. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 949-72, October.
  21. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  22. Wasmer, Etienne & Zenou, Yves, 2006. "Equilibrium search unemployment with explicit spatial frictions," Labour Economics, Elsevier, vol. 13(2), pages 143-165, April.
  23. Sato, Yasuhiro, 2004. "City structure, search, and workers' job acceptance behavior," Journal of Urban Economics, Elsevier, vol. 55(2), pages 350-370, March.
  24. 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.
  25. Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do the Poor Live in Cities?," NBER Working Papers 7636, National Bureau of Economic Research, Inc.
  26. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
  27. Wheaton, William C., 1974. "A comparative static analysis of urban spatial structure," Journal of Economic Theory, Elsevier, vol. 9(2), pages 223-237, October.
  28. Rappaport, Jordan & Kahn, Matthew E. & Glaeser, Edward, 2008. "Why Do The Poor Live In Cities? The Role of Public Transportation," Scholarly Articles 2958224, Harvard University Department of Economics.
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