DP3209 How do Firms Redline Workers?

Author(s): Yves Zenou
Publication Date: February 2002
Keyword(s): distance to jobs, efficiency wage, recruitment area, spatial mismatch
JEL(s): J41, R14
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3209

In a city where individuals endogenously choose their residential location, firms determine their spatial efficiency wage and a geographical red line beyond which they do not recruit workers. This is because workers experiencing longer commuting trips provide lower effort levels than those residing closer to jobs. By solving simultaneously for the land and labour market equilibrium, we show that there exists a unique market equilibrium that determines the location of all individuals in the city, the land rent, the efficiency wage, the recruitment area and the unemployment level in the economy. This model is able to provide a new mechanism for the spatial mismatch hypothesis by taking the firm’s viewpoint. Distance to jobs is harmful not because workers have low information about jobs (search) or because commuting costs are too high but because firms do not hire remote workers.