SEARCH FRICTIONS, UNEMPLOYMENT, AND HOUSING IN CITIES: THEORY AND POLICIES

Authors


  • The author is grateful to the editor Marlon Boarnet and three anonymous referees for very helpful comments. The author also thanks Yannis Ioannides, Yasuhiro Sato, Matthias Wrede, Yves Zenou, and seminar participants at the 6th Meeting of the Urban Economics Association in Miami and the 2011 SUDSWEc Workshop at Stockholm School of Economics. All remaining errors are my own. An earlier version of the paper is distributed with the title Job Search in the Muth–Mills Model: Theory and Policies.

ABSTRACT

We propose an urban search-matching model with land development. Wages, unemployment, prices of housing and land are endogenously determined. We characterize the steady-state equilibrium and then discuss the issue of efficiency. To explore interactions among markets, we implement comparative static analysis. We also consider three policies: an entry-cost policy that reduces firms' entry, a transportation policy that reduces commuting costs, and a housing policy that decreases rental prices. We find that the transportation and housing policies are more efficient if the unemployment rate is low, while the entry-cost policy is more efficient if the unemployment rate is high.

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