Costly Commuting and the Job Ladder

82 Pages Posted: 18 May 2020

See all articles by Jean Flemming

Jean Flemming

Board of Governors of the Federal Reserve System

Date Written: March 27, 2020

Abstract

Even though workers in the UK spent just 1,000 pounds on commuting in 2017, the economic loss may be far higher because of the congestion externality arising from the way in which one worker's commute affects the commuting time of others. I provide empirical evidence that commuting time affects job acceptance, pointing to large indirect costs of congestion. To interpret the empirical facts and quantify the costs of congestion, I build a model featuring a frictional labor market within a metropolitan area. By endogenizing commuting congestion in a labor search model, the model connects labor market responses to urban policies. Workers evaluate job offers based on their productivity and commuting costs, taking congestion as given, but by accepting and commuting to distant jobs, affect other workers'; labor market outcomes. Through this mechanism, equilibrium moving decisions, housing rent, and wages are tightly linked to congestion. Calibrating the model to the local labor market around London, I show that the effect of the congestion externality is to significantly decrease welfare and increase wage inequality. I quantify the effects of a congestion tax on labor market outcomes, and show that the welfare-maximizing tax has substantial negative effects on inequality, but comes at a cost of higher unemployment.

Keywords: Job search; Wage distribution; Congestion externality; Commuting

JEL Classification: E24; J32; J62; R13; R41

Suggested Citation

Flemming, Jean, Costly Commuting and the Job Ladder (March 27, 2020). FEDS Working Paper No. 2020-025 https://doi.org/10.17016/FEDS.2020.025 , Available at SSRN: https://ssrn.com/abstract=3601282

Jean Flemming (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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