Working Paper: CEPR ID: DP2612
Authors: Jan K. Brueckner; Jacques-Francois Thisse; Yves Zenou
Abstract: We present a new way of modelling local labour markets by linking the space of workers' skills and the physical space of cities. The key lesson of our analysis is that firms exploit workers in these two spaces by setting wages that are below the competitive level. The degree of monopsony power depends on the elasticity of the firm's labour pool, which is inversely related to the costs workers incur in commuting and acquiring skills. Our analysis thus shows how socioeconomic ghettos emerge as workers with poor skill matches are also those who incur the highest commuting costs.
Keywords: imperfect labour markets; spatial mismatch; system of cities
JEL Codes: J42; J61; R14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monopsony power (J42) | wages below competitive levels (J38) |
| Elasticity of labor pool (J29) | monopsony power (J42) |
| Commuting costs (R41) | monopsony power (J42) |
| Skills (J24) | monopsony power (J42) |
| Poor skill matches (C78) | commuting costs (R48) |
| Commuting costs (R41) | net wages (J31) |
| Commuting distance (R41) | skill distance from employer (J24) |
| Lower-skilled workers (F66) | longer commutes (R41) |
| Longer commutes (R41) | lower wages (J31) |