Costly Commuting and the Job Ladder

Jean Flemming

No 2020-025, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 distributions; Congestion externality; Commuting (search for similar items in EconPapers)
JEL-codes: E24 J32 J62 R13 R41 (search for similar items in EconPapers)
Pages: 82 p.
Date: 2020-03-27
New Economics Papers: this item is included in nep-dge, nep-gen, nep-geo, nep-lma, nep-mac, nep-tre and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Costly Commuting and the Job Ladder (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-25

DOI: 10.17016/FEDS.2020.025

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