Working Paper: CEPR ID: DP6841
Authors: Stephen L. Ross; Yves Zenou
Abstract: Recent theoretical work has examined the spatial distribution of unemployment using the efficiency wage model as the mechanism by which unemployment arises in the urban economy. This paper extends the standard efficiency wage model in order to allow for behavioural substitution between leisure time at home and effort at work. In equilibrium, residing at a location with a long commute affects the time available for leisure at home and therefore affects the trade-off between effort at work and risk of unemployment. This model implies an empirical relationship between expected commutes and labour market outcomes, which is tested using the Public Use Microdata sample of the 2000 U.S. Decennial Census. The empirical results suggest that efficiency wages operate primarily for blue collar workers, i.e. workers who tend to be in occupations that face higher levels of supervision. For this subset of workers, longer commutes imply higher levels of unemployment and higher wages, which are both consistent with shirking and leisure being substitutable.
Keywords: Efficiency Wage; Leisure; Urban Unemployment
JEL Codes: J41; R14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher levels of unemployment (J64) | higher wages for blue-collar workers (J39) |
| longer commutes (R41) | higher levels of unemployment (J64) |
| longer commutes (R41) | higher wages for blue-collar workers (J39) |
| longer commutes (R41) | higher unemployment rates due to shirking (J79) |