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Housing and the Labor Market: Time to Move and Aggregate Unemployment

  • Rupert, Peter

    ()

    (University of California, Santa Barbara)

  • Wasmer, Etienne

    ()

    (Sciences Po, Paris)

The Mortensen-Pissarides model with unemployment benefits and taxes has been able to account for the variation in unemployment rates across countries but does not explain why geographical mobility is very low in some countries (on average, three times lower in Europe than in the U.S.). We build a model in which both unemployment and mobility rates are endogenous. Our findings indicate that an increase in unemployment benefits and in taxes does not generate a strong decline in mobility and accounts for only half to two-thirds of the difference in unemployment from the US to Europe. We find that with higher commuting costs the effect of housing frictions plays a large role and can generate a substantial decline in mobility. We show that such frictions can account for the differences in unemployment and mobility between the US and Europe.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4172.

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Length: 39 pages
Date of creation: May 2009
Date of revision:
Publication status: published in: Journal of Monetary Economics, Carnegie-NYU-Rochester Conference Issue, 2012, 59 (1), 24-36
Handle: RePEc:iza:izadps:dp4172
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  1. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  2. 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.
  3. Ommeren, Jos van & Berg, Gerard J. van den & Gorter, Cees, 1998. "Estimating the marginal willingness to pay for commuting," Serie Research Memoranda 0046, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  4. Zax, J.S. & Kain, J.F., 1991. "Moving to the Suburbs: Do Relocating Companies Leave Their Black Employees Behind?," Harvard Institute of Economic Research Working Papers 1562, Harvard - Institute of Economic Research.
  5. Rupert, Peter & Stancanelli, Elena G. F. & Wasmer, Etienne, 2009. "Commuting, Wages and Bargaining Power," IZA Discussion Papers 4510, Institute for the Study of Labor (IZA).
  6. 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.
  7. Gaumont D. & Schindler M. & Wright R., 2005. "“Alternative Theories of Wage Dispersion”," Working Papers ERMES 0505, ERMES, University Paris 2.
  8. 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.
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