Becker Friedman Institute

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Commuting, Migration and Local Employment Elasticities

We provide theory and evidence that the elasticity of local employment to a labor demand shock is heterogeneous depending on the commuting openness of the local labor market. We develop a quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We quantify this model to match the observed gravity equation relationships for trade and commuting. We find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent. We provide separate evidence in support of the model's predictions using decompositions of employment changes, million dollar plants, and trade shocks.

Authors: 
Ferdinando Monte, Georgetown University
Stephen Redding, Princeton University
Esteban Rossi-Hansberg, Princeton University
Publication Date: 
October, 2017
Publication Status: 
Document Number: 
2017-073
File Description: 
First version, September 25, 2017