How Do Firms Redline Workers?

26 Pages Posted: 19 Mar 2002

See all articles by Yves Zenou

Yves Zenou

Monash University - Department of Economics; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); Stockholm University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2002


In a city where individuals endogenously choose their residential location, firms determine their spatial efficiency wage and a geographical red line beyond which they do not recruit workers. This is because workers experiencing longer commuting trips provide lower effort levels than those residing closer to jobs. By solving simultaneously for the land and labour market equilibrium, we show that there exists a unique market equilibrium that determines the location of all individuals in the city, the land rent, the efficiency wage, the recruitment area and the unemployment level in the economy. This model is able to provide a new mechanism for the spatial mismatch hypothesis by taking the firm's viewpoint. Distance to jobs is harmful not because workers have low information about jobs (search) or because commuting costs are too high but because firms do not hire remote workers.

Keywords: Distance to jobs, efficiency wage, recruitment area, spatial mismatch

JEL Classification: J41, R14

Suggested Citation

Zenou, Yves, How Do Firms Redline Workers? (February 2002). Available at SSRN:

Yves Zenou (Contact Author)

Monash University - Department of Economics ( email )


Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Centre for Economic Policy Research (CEPR)

United Kingdom

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91

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