DP2612 Local Labour Markets, Job Matching and Urban Location

Author(s): Jan Brueckner, Jacques-François Thisse, Yves Zenou
Publication Date: November 2000
Keyword(s): Imperfect Labour Markets, Spatial Mismatch, System Of Cities
JEL(s): J42, J61, R14
Programme Areas: Labour Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2612

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.