Equilibrium Search Unemployment with Explicit Spatial Frictions
32 Pages Posted: 31 Jan 2005
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Equilibrium Search Unemployment with Explicit Spatial Frictions
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: Suggested Citation
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