Building Bridges and Widening Gaps: Efficiency Gains and Equity Concerns of Labor Market Expansions

54 Pages Posted: 22 Oct 2019

See all articles by Aline Butikofer

Aline Butikofer

Norwegian School of Economics (NHH) - Department of Economics

Katrine Vellesen Løken

Norwegian School of Economics (NHH) - Department of Economics

Alexander Willén

Norwegian School of Economics (NHH) - Department of Economics

Date Written: October 20, 2019

Abstract

We exploit the opening of a large bridge to study how access to a larger labor market affects economic efficiency, and how these potential efficiency gains are distributed across workers. The bridge we study connected the third largest city of Sweden to the capital of Denmark, and led to a substantial increase in the labor market opportunities of Swedes. Using unique cross-country matched registry data, we find that the bridge led to a large increase in cross-country commuting among Swedes, driven both by extensive and intensive employment responses. This commuting effect translates into a significant increase in the average wage of Swedes residing close to the bridge, providing strong evidence of an efficiency gain for individuals in Sweden. However, these efficiency gains are unevenly distributed across workers: the effect is largest for high-educated men and smallest for low-educated women. Thus, the efficiency gains come at the cost of rising income inequality and an increase in the gender wage gap, both within- and across-households. These equity effects are driven not only by differences in the propensity to commute, but also by occupational segregation.

Suggested Citation

Butikofer, Aline and Løken, Katrine Vellesen and Willén, Alexander, Building Bridges and Widening Gaps: Efficiency Gains and Equity Concerns of Labor Market Expansions (October 20, 2019). NHH Dept. of Business and Management Science Discussion Paper No. 19/2019. Available at SSRN: https://ssrn.com/abstract=3472984 or http://dx.doi.org/10.2139/ssrn.3472984

Aline Butikofer (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Katrine Vellesen Løken

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Alexander Willén

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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