The role of labor market structure in urban sprawl

Abstract

In this article, I construct and calibrate a tractable search and matching model in which the residential density of workers is endogenous. Using this new framework, I demonstrate that labor market structure generates significant urban sprawl. I identify the fact that firms compensate workers for their spatial costs as the major cause of this large inefficiency. Next, I underline that optimality can be restored if the government implements an employee commuter-benefit program. Finally, I demonstrate that these results are robust to the inclusion of other features such as various job centers, wage settings, calibrations, preferences and social welfare functions.