Costly Commuting and the Job Ladder

Abstract:
The interaction between commuting, mobility, and employment are studied in a model of search on the job. When commuting is costly, the ability to move improves workers’ utility. The more difficult it is to move, the more weight unemployed workers put on commuting, leading them to reject more job offers. When firms differ in productivity, high commuting costs can cause even the most productive job offers to be rejected in equilibrium. For a given wage, employed workers with shorter commutes accept fewer jobs through on-the-job search, slowing their progress up the job ladder. A fall in the probability to move or rise in commuting costs will increase unemployment and decrease the speed at which workers climb the job ladder, leading to large earnings losses through slower wage growth and an endogenous fall in output. I document the link between commutes, job-to-job transitions, and earnings empirically. I build a theoretical model to study how policies that increase mobility or subsidize commuting costs affect future wage growth.