1. Inter-regional labor market equilibrium: another pattern of spatial mismatch

2. objective ► Make a critical assessment of the “ spatial mismatch hypothesis ” and ► Design a general equilibrium model for inter- regional labor market equilibrium,  To explain the existence of inter-regional imbalances in labor demand,  To explain the existence of differences in types of regional economic development patterns  To clarify the role of commuting and migration  To evaluate the role of the public sector.

3. The spatial mismatch hypothesis (Kain 68, Kain 94) ► Job dispersal from Center (C) to Suburbs (S). ► Richer (White) migrate from C to S. ► Poorer (Black) stay in C in spite of increasing labor demand in S, as a result of “ housing segregation ” or “ income segregation ” : gaps between C and S. ► Public policy solution: compensatory measures such as subsidies for relocation (Smith and Zenou, 2003).

4. Some additions and empirical testing (Martin 2004, Zenou and Brueckner 2000, Rogers 97, Taylor and Ong 95, Eliasson and Lindgren 2003, Romani, Surinach and Artis 2003, Elhorst 2003, Renkow 2003) ► Poor (Black) do not migrate, but alternatively they can commute to jobs in S. Commuting costs discriminate against them. ► Mostly unskilled, high relative commuting cost, leading to an increase in the gap between C and S.

5. Lack of a model ► No model that explains a causality relationship (Arnott, 98) ► Job dispersal should not necessarily lead to spatial mismatch, even given mobility constraints. ► Job dispersal or suburb growth cannot be considered as exogenous.

6. A general equilibrium model ► Following first steps by Arnott (98). ► Job dispersal is not exogenous: explained by agglomeration economies in two regions. ► Existence of a third regional dimension. ► Labor demand behavior depends on types of activities: non-tradables, tradable manufacturing, tradable services. ► Reject the assumption of “ people follow jobs ” : migration also function of housing cost. ► Existence of endogenous growth, through market induced demand (non-tradables). ► Reject the assumption of dichotomic behavior of migration: replace segregation with migration cost. ► Public policy as an exogenous variable.

7. ► 2 regions: C (center: the Tel-Aviv district) and S (Suburbs: the Central district). ► 3 economic sectors: NT, TM, TS. ► Labor demand: Function of agglomeration economies, land cost, and population. Separate estimation for each region, each sector

8. Agglomeration economies AEAE AGAG Increasing return to agglomeration at first stage, decreasing return later. Separate function for each economic sector. Land cost Depends on density of population and of economic activity Influenced by government

9. Commuting, or inter-regional labor supply Function of relative labor supply in regions, and of commuting cost, for each specific economic sector Communication costs depend on distance and on government policy

10. Migration Depends on differences in land prices, labor demand weighted by communication costs, migration cost: 1.Potential for “ housing cost driven migration ” (as in the periphery), and especially if cost of commuting is low (as in suburbs): complementarity (not just trade-off) between commuting and migration. 2.Migration costs may reflect various levels of “ housing segregation ” (Beduins) or of income segregation.

11. Labor supply Depends on participation rates, population and education (skills) Quality of labor force influenced by government policy Unemployment Population

12. Potential inter-regional labor market patterns 1. Stabilization of the process at the Center-Suburbs level, ignition of a new process at the Suburbs-Periphery level Table 1: annual growth of labor demand 97-0291-9677-90total Region 0.3%4.3%1.5%1.8% C 4.9%6.9%2.0%3.9% S 2.4%8.7%2.5%3.9% P 2. Labor demand qualities: focus in C on non-tradables but also in knowledge intensive services with strong agglomeration economies, high tech manufacturing to S, non-tradables and manufacturing to P (increasing location quotients).

13. Table 2: annual growth of labor supply 97-0291-9677-90total Region 0.9%2.9%1.2%1.5% C 4.9%4.8%3.2%4.0% S 3.3%8.5%3.1%4.4% P Table 3: average annual migration balance per thousand population 97-0291-9677-90total Region -13-15-3-8C 14779S 013-50P 3. Slow growth of labor supply in C, high growth in S, but stabilization of growth rate in last years: effect of shape of agglomeration economies curve. 4. P still far from agglomeration economies: slowing growth. 5. Strong migration to S, gaps between labor demand and supply, but no growth in unemployment.

14. Table 4: average share of out commuters from region out of labor supply 97-0191-9677-90Total Region 16%13% 14% C 30% S 12% P Table 5: average share of in commuters to the region out of labor demand 97-0191-9677-90Total Region 32%27%21%24% C 21%19%17%18% S 7%6% P 6. In spite of decrease share of C in labor demand, increasing commuting into C: not depletion, rather concentration in specific economic role. 7. Steady commuting out from S, in spite of increasing growth: regional economic integration. 8. No response yet of P to changes in labor supply and to increasing unemployment: commuting not yet an appropriate solution.

15. conclusion ► First steps for a model explaining the inter- regional behavior of labor market. ► “ people follow jobs ” : not necessarily true. ► Commuting as a complement that enables migration. ► Decreasing returns to agglomeration lead to a stable equilibrium. ► Public policy is crucial for the solution of bottlenecks (investments in communication, infrastructure, education)