On-the-Job Search and City Structure

Abstract

This paper investigates an equilibrium search model in which search frictions are increasing with the distance to a city's central business district, allowing for on-the-job search and endogenous wage formation and land allocation. The findings suggest that the decentralized market results in a more segregated outcome than may be socially desirable. The externality comes from the misguided incentives for the low-paid workers, who have a high preference for central locations in order to climb up the job ladder. Policies reducing the rental costs of unemployed workers for locations close to the central business district may potentially increase welfare.