Transport Costs in a Multiregional Equilibrium Job Search Model

In this chapter, we introduce a multiregional equilibrium job search model to analyse the economic effects of intraregional and interregional transport cost changes. The key assumption is that unemployed job seekers and firms with vacancies have to search for each other. The regional unemployment and vacancy equilibrium rates, as well as the wage levels, are endogenously determined.

According to the model, decreases in interregional transport costs tend to reduce local and national unemployment and increase vacancies. Model simulations indicate that wages are less sensitive compared to producer prices and that both labour-market search effects and negative externalities have substantial impacts on the overall effect of changes in transport costs.