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

  • Peter Rupert

    (Department of economics (UCSB))

  • Etienne Wasmer

    (Département d'économie)

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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Date of creation: 17 May 2009
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Handle: RePEc:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h48256647
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  1. 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.
  2. 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.
  3. Peter Rupert, Elena Stancanelli, Etienne Wasmer, 2009. "Commuting, Wages and Bargaining Power," THEMA Working Papers 2009-02, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. 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.
  5. Damien Gaumont & Martin Schindler & Randall Wright, 2005. "Alternative Theories of Wage Dispersion," PIER Working Paper Archive 05-017, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. 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.
  7. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  8. 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.
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