Working Paper: NBER ID: w19118
Authors: Paul Beaudry; David A. Green; Benjamin M. Sand
Abstract: In this paper, we present a spatial equilibrium model where search frictions hinder the immediate reallocation of workers both within and across local labour markets. Because of the frictions, firms and workers find themselves in bilateral monopoly positions when determining wages. Although workers are not at each instant perfectly mobile across cities, in the baseline model we assume that workers flows are sufficient to equate expected utility across markets. We use the model to explore the joint determination of wages, unemployment, house prices and city size (or migration). A key role of the model is to clarify conditions under which this type of spatial equilibrium setup can be estimated. We then use U.S. data over the period 1970-2007 to explore the fit of model and it quantitative properties of the model. Our main goal is to highlight forces that influence spatial equilibria at 10 year intervals.
Keywords: spatial equilibrium; unemployment; wage bargaining; housing prices; migration
JEL Codes: J01; J2; J3; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local employment opportunities (J68) | migration decisions (F22) |
| wages (J31) | housing costs (R21) |
| housing prices (R31) | wages (J31) |
| migration (F22) | marginal productivity (D24) |
| migration (F22) | house prices (R31) |
| congestion externalities or migration frictions (R23) | utility across localities (R53) |