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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. 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.
  2. Manning, Alan, 2003. "The real thin theory: monopsony in modern labour markets," Labour Economics, Elsevier, vol. 10(2), pages 105-131, April.
  3. 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.
  4. 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.
  5. Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do The Poor Live In Cities?," Harvard Institute of Economic Research Working Papers 1891, Harvard - Institute of Economic Research.
  6. Madden, Janice Fanning, 1985. "Urban wage gradients: Empirical evidence," Journal of Urban Economics, Elsevier, vol. 18(3), pages 291-301, November.
  7. Seater, John J, 1979. "Job Search and Vacancy Contacts," American Economic Review, American Economic Association, vol. 69(3), pages 411-19, June.
  8. Harris Selod & Yves Zenou, 2006. "City Structure, Job Search and Labour Discrimination: Theory and Policy Implications," Economic Journal, Royal Economic Society, vol. 116(514), pages 1057-1087, October.
  9. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
  10. Gobillon, Laurent & Selod, Harris, 2007. "The Effect of Segregation and Spatial Mismatch on Unemployment: Evidence from France," CEPR Discussion Papers 6198, C.E.P.R. Discussion Papers.
  11. Zenou,Yves, 2009. "Urban Labor Economics," Cambridge Books, Cambridge University Press, number 9780521875387.
  12. 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.
  13. Sato, Yasuhiro, 2004. "City structure, search, and workers' job acceptance behavior," Journal of Urban Economics, Elsevier, vol. 55(2), pages 350-370, March.
  14. Wasmer, Etienne & Zenou, Yves, 2005. "Equilibrium Search Unemployment with Explicit Spatial Frictions," IZA Discussion Papers 1465, Institute for the Study of Labor (IZA).
  15. 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.
  16. 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.
  17. 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.
  18. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  19. Zax, Jeffrey S., 1991. "Compensation for commutes in labor and housing markets," Journal of Urban Economics, Elsevier, vol. 30(2), pages 192-207, September.
  20. 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.
  21. 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.
  22. 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.
  23. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  24. Michiel van Leuvensteijn & J. van Ommeren, 2003. "New evidence of the effect of transaction costs on residential mobility," CPB Discussion Paper 18, CPB Netherlands Bureau for Economic Policy Analysis.
  25. Sato, Yasuhiro, 2001. "Labor Heterogeneity in an Urban Labor Market," Journal of Urban Economics, Elsevier, vol. 50(2), pages 313-337, September.
  26. 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.
  27. Jos Van Ommeren & Piet Rietveld, 2007. "Commuting and Reimbursement of Residential Relocation Costs," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(1), pages 51-73, January.
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