Do Commuting Subsidies Drive Workers to Better Firms?

David Agrawal, Elke J. Jahn and Eckhard Janeba

No 10981, CESifo Working Paper Series from CESifo

Abstract: An unappreciated potential benefit of commuting subsidies is that they can expand the choice set of feasible job opportunities in a way that facilitates a better job match quality. Variations in wages and initial commuting distances, combined with major reforms of the commuting subsidy formula in Germany, generate worker-specific variation in commuting subsidy changes. We study the effect of changes in these subsidies on a worker’s position in the wage distribution. Increases in the generosity of commuting subsidies induce workers to switch to higher-paying jobs with longer commutes. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality.

Keywords: commuting; commuting subsidies; taxes; wage distribution; local labor markets; AKM; assortativity (search for similar items in EconPapers)
JEL-codes: H20 H31 J20 J61 R23 R48 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-geo, nep-hrm, nep-lab, nep-pbe, nep-tre and nep-ure
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Working Paper: Do Commuting Subsidies Drive Workers to Better Firms? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10981

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