Costly Commuting and the Job Ladder

Abstract:

Even though households in the UK spent over £1,000 per worker on commuting in 2017, the economic costs may be far higher because commuting and the associated congestion affect workers’ incentives for job search and acceptance. At the same time, workers’ job acceptance decisions determine commuting patterns and therefore aggregate congestion. Using UK data on commuting and employment outcomes, I find a strong positive relationship between commuting time and future job mobility. To understand the empirical patterns and quantify the aggregate implications, I build a novel model featuring a frictional labor market in which commuting gives rise to congestion as workers travel similar paths to work. I consider the interaction between congestion, employment, aggregate productivity, and housing rents as workers move from job to job and across space. Since it takes time to find a close and productive job, and because moving house is costly, many workers commute to distant jobs. In doing so, they contribute to congestion and affect the incentives of other workers to accept job offers. The quantitative model is calibrated to match features of the London area and suggests that a significant share of wage and utility dispersion is a result of congestion. Policies targeting infrastructure without explicitly targeting congestion have little effect on welfare, but remote working policies can lead to large welfare gains. Focusing only on the congestion effects of policies may be misleading about their welfare implications due to their effects on workers’ progress up the job ladder.