Commuting, Migration and Local Employment Elasticities∗

Many changes in the economic environment are local, including policy changes and infrastructure investments. The effect of these changes depends crucially on the ability of factors to move in response. Therefore a key object of interest for policy evaluation and design is the elasticity of local employment to these changes in the economic environment. We develop a quantitative general equilibrium model that incorporates spatial linkages between locations in goods markets (trade) and factor markets (commuting and migration). We find substantial heterogeneity across locations in local employment elasticities. We show that this heterogeneity can be well explained with theoretically motivated measures of commuting flows. Without taking into account this dependence, estimates of the local employment elasticity lack external validity. We also find that commuting flows and their importance cannot be accounted for with standard measures of size or wages at the country or commuting zone levels. ∗Much of this research was undertaken while Ferdinando Monte was visiting the International Economics Section (IES) at Princeton. We are grateful to the IES and Princeton more generally for research support. We are also grateful to conference and seminar participants at Brown, Duke and Princeton for helpful comments and suggestions. Responsibility for any results, opinions and errors lies with the authors alone. †Carey Business School, 100 International Drive, Baltimore, MD 21202. Email: [email protected]. ‡Dept. Economics and WWS, Fisher Hall, Princeton, NJ 08544. Tel: 609 258 4016. Email: [email protected]. §Dept. Economics and WWS, Fisher Hall, Princeton, NJ 08544. Tel: 609 258 4024. Email: [email protected].