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High Relocation Costs in Search-Matching Models: Theory and Application to Spatial Mismatch

  • Zenou, Yves

    ()

    (Stockholm University)

We develop a standard search-matching model in which mobility costs are so high that it is too costly for workers to relocate when a change in their employment status occurs. We show that, in equilibrium, wages increase with distance to jobs and commuting costs because firms need to compensate the transportation cost difference between the employed and unemployed workers at each location in the city. We also show that the equilibrium land rent is negatively affected by the unemployment benefit because an increase in the latter induce firms to create less jobs, which, in turn, reduces the competition in the land market. We then use this model to provide a mechanism for the observed spatial mismatch between where black workers live and where jobs are. Because blacks and whites differ by their contact rate, we show that the former reside far away from jobs, have higher unemployment rates and lower wages. This is because the housing market amplifies the negative effects of the labor market by creating additional frictions.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2739.

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Length: 32 pages
Date of creation: Apr 2007
Date of revision:
Publication status: published in: Labour Economics, 2009, 16 (5), 534-546
Handle: RePEc:iza:izadps:dp2739
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  1. Sato, Yasuhiro, 2004. "City structure, search, and workers' job acceptance behavior," Journal of Urban Economics, Elsevier, vol. 55(2), pages 350-370, March.
  2. 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.
  3. Manning, Alan, 2003. "The real thin theory: monopsony in modern labour markets," Labour Economics, Elsevier, vol. 10(2), pages 105-131, April.
  4. Robert S. Chirinko, 1981. "An Empirical Investigation of the Returns to Job Search," Discussion Papers 452, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Yannis M. Ioannides & Linda Datcher Loury, 2002. "Job Information Networks, Neighborhood Effects and Inequality," Discussion Papers Series, Department of Economics, Tufts University 0217, Department of Economics, Tufts University.
  6. Zenou, Yves, 2006. "Efficiency wages and unemployment in cities: The case of high-relocation costs," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 49-71, January.
  7. Seater, John J, 1979. "Job Search and Vacancy Contacts," American Economic Review, American Economic Association, vol. 69(3), pages 411-19, June.
  8. GOBILLON Laurent & SELOD Harris, 2007. "The effects of segregation and spatial mismatch on unemployment: evidence from France," Research Unit Working Papers 0702, Laboratoire d'Economie Appliquee, INRA.
  9. Barron, John M & Gilley, Otis W, 1981. "Job Search and Vacancy Contacts: Note," American Economic Review, American Economic Association, vol. 71(4), pages 747-52, September.
  10. Smith, Tony E & Zenou, Yves, 2003. "Spatial Mismatch, Search Effort and Urban Spatial Structure," CEPR Discussion Papers 3731, C.E.P.R. Discussion Papers.
  11. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  12. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455, June.
  13. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  14. Wasmer, Etienne & Zenou, Yves, 2004. "Equilibrium Search Unemployment with Explicit Spatial Frictions," Working Paper Series 615, Research Institute of Industrial Economics.
  15. Harris Selod & Yves Zenou, 2004. "City-structure, job search and labor discrimination : theory and policy implications," Research Unit Working Papers 0403, Laboratoire d'Economie Appliquee, INRA.
  16. 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.
  17. 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.
  18. Patacchini, Eleonora & Zenou, Yves, 2005. "Spatial mismatch, transport mode and search decisions in England," Journal of Urban Economics, Elsevier, vol. 58(1), pages 62-90, July.
  19. Rogers, Cynthia L., 1997. "Job Search and Unemployment Duration: Implications for the Spatial Mismatch Hypothesis," Journal of Urban Economics, Elsevier, vol. 42(1), pages 109-132, July.
  20. Zax, Jeffrey S., 1991. "Compensation for commutes in labor and housing markets," Journal of Urban Economics, Elsevier, vol. 30(2), pages 192-207, September.
  21. 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.
  22. Jos Van Ommeren & Piet Rietveld, 2007. "Commuting and Reimbursement of Residential Relocation Costs," Journal of Transport Economics and Policy, University of Bath, vol. 41(1), pages 51-73, January.
  23. Madden, Janice Fanning, 1985. "Urban wage gradients: Empirical evidence," Journal of Urban Economics, Elsevier, vol. 18(3), pages 291-301, November.
  24. Jos Van Ommeren & Michiel Van Leuvensteijn, 2005. "New Evidence of the Effect of Transaction Costs on Residential Mobility," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 681-702.
  25. Jos van Ommeren & Arno van der Vlist & Peter Nijkamp, 2006. "Transport-Related Fringe Benefits: Implications For Moving And The Journey To Work," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 493-506.
  26. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  27. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
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