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An urban labor market with frictional housing markets: theory and an application to the Paris urban area

Author

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  • Guillaume Chapelle
  • Etienne Wasmer
  • Pierre-Henri Bono

Abstract

We build a tractable model of frictional labor markets and segmented housing markets to study welfare effects of regulations, including spatial misallocation and deviation from competitive pricing of rents. The model is summarized by a labor demand curve depending on rents and wages, a wage curve reflecting labor market tightness and rents, and finally a rent curve reflecting employment. In this economy, the rent gradient in the flexible rent sector is higher than in a purely competitive housing market. This leads to spatial misallocation due to some employees commuting too much and some non-employed living inefficiently close to jobs. In turn, reducing generalized commuting costs reduces the rent gradient in the flexible rent sector and the cost of spatial misallocation of workers. The reduction in market rents is maximal when labor markets are less frictional and housing markets are more frictional, and welfare gains are larger when both are more efficient.

Suggested Citation

  • Guillaume Chapelle & Etienne Wasmer & Pierre-Henri Bono, 2021. "An urban labor market with frictional housing markets: theory and an application to the Paris urban area," Journal of Economic Geography, Oxford University Press, vol. 21(1), pages 97-126.
    • Handle: RePEc:oup:jecgeo:v:21:y:2021:i:1:p:97-126.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbaa006
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    Cited by:

    1. David, Quentin & Kilani, Moez, 2022. "Transport policies in polycentric cities," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 101-117.
    2. Jennifer Buurma-Olsen & Jort Sinninghe Damsté, 2023. "Quantifying Misallocation of Public Housing," CPB Discussion Paper 454, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Yiyao He, 2022. "Endogenous Land Supply Policy, Economic Fluctuations and Social Welfare Analysis in China," Land, MDPI, vol. 11(9), pages 1-18, September.
    4. Konstantin A. Kholodilin, 2022. "Rent Control Effects through the Lens of Empirical Research: An almost Complete Review of the Literature," Discussion Papers of DIW Berlin 2026, DIW Berlin, German Institute for Economic Research.
    5. Kholodilin, Konstantin A., 2024. "Rent control effects through the lens of empirical research: An almost complete review of the literature," Journal of Housing Economics, Elsevier, vol. 63(C).
    6. Chapelle, Guillaume & Domènech Arumí, Gerard & Gobbi, Paula Eugenia, 2023. "Housing, Neighborhoods and Inequality," CEPR Discussion Papers 17969, C.E.P.R. Discussion Papers.
    7. Léa Bou Sleiman, 2021. "Are car-free centers detrimental to the periphery? Evidence from the pedestrianization of the Parisian riverbank," Working Papers 2021-03, Center for Research in Economics and Statistics.

    More about this item

    Keywords

    Urban equilibrium unemployment; rent controls; transport infrastructure;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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