Equilibrium Search Unemployment with Explicit Spatial Frictions

32 Pages Posted: 31 Jan 2005

See all articles by Etienne Wasmer

Etienne Wasmer

New York University (NYU) - New York University, Abu Dhabi; Centre for Economic Policy Research (CEPR)

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: November 2004

Abstract

Assuming that job search efficiency decreases with distance to jobs, workers' location in a city depends on spatial elements such as commuting costs and land prices and on labor elements such as wages and the matching technology. In the absence of moving costs, we show that there exists a unique equilibrium in which employed and unemployed workers are perfectly segregated but move at each employment transition. We investigate the interactions between the land and the labor market equilibrium and show under which condition they are interdependent. When relocation costs become positive, a new zone appears in which both the employed and the unemployed co-exist and are not mobile. We demonstrate that the size of this area goes continuously to zero when moving costs vanish. Finally, we endogenize search effort, show that it negatively depends on distance to jobs and that long and short-term unemployed workers coexist and locate in different areas of the city.

Keywords: Local labor markets, relocation costs, search effort, job matching

JEL Classification: E24, J41, R14

Suggested Citation

Wasmer, Etienne and Zenou, Yves, Equilibrium Search Unemployment with Explicit Spatial Frictions (November 2004). Available at SSRN: https://ssrn.com/abstract=654522

Etienne Wasmer (Contact Author)

New York University (NYU) - New York University, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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