On-the-job search in urban areas

a r t i c l e i n f o JEL classification: D83 J64 R14 R23 Keywords: City structure On-the-job search Unemployment Efficiency Relocation path Career path This study develops an on-the-job search model involving spatial structure. In this model, workers are either employed and commute frequently to a central business district (CBD) or unemployed and commute less frequently to the CBD in search of jobs. When an unemployed worker succeeds in off-the-job search, the quality of the job match is determined stochastically: a good match yields high productivity whereas a bad match yields low productivity. While a high-productivity worker does not seek a new job, a low-productivity worker decides whether to conduct on-the-job search, which would require additional commuting to the CBD. Analysis of this model demonstrates that in equilibrium, the relocation path of workers corresponds to their career path. Furthermore, welfare analysis demonstrates that such a spatial structure distorts firms' decision regarding the posting of vacancies. It is clear that urban areas currently play a dominant role as areas of employment and residence throughout the world. 1 In many cities, people live in suburbs and commute from there to business districts. How does the structure of a city and commuting relate to job creation and unemployment within it? Recently, several studies have addressed this question by combining urban and labor economics. These studies have succeeded in providing answers to a certain part of this question by developing search and matching models within urban structures. 2 This study contributes to this literature by extending the urban search model à la Wasmer and Zenou (2002) with on-the-job search, i.e., the possibility that employed workers search for a new job, which has been recognized as a significant aspect of job search in labor economics (see Pissarides (2000) (Chapter 4), for example) but not yet fully incorporated into the urban search models. Wasmer and Zenou (2002) introduced a monocentric city structure à la Alonso (1964) into a job search model on the basis of the key assumption that workers' search intensity is negatively affected by access to jobs concentrated within a Central Business District (CBD). Such an assumption leads to multiple urban configurations in equilibrium, including that of unemployed workers residing close to jobs or unemployed workers residing distant from jobs, with the latter configuration being consistent with the well-known spatial mismatch hypothesis. 3 Smith and Zenou (2003) demonstrated that when …