We introduce a spatial dimension in a search equilibrium unemployment model. By assuming that workers' search efficiency decreases with the distance to the employment centre, two urban equilibrium configurations emerge: either the unemployed reside close to the employment centre or far away from it, depending on the values of the commuting costs and of the surplus associated with search, which depends on the labor market equilibrium. The labor market equilibrium itself depends crucially on these urban equilibria. We show that the unemployment level is lower in the first urban equilibrium.

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E Wasmer and Y Zenou

October 1997     Paper Number CEPDP0368