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Urbanization effects on job search decision�

Yudai Higashi

Okayama University

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October 8, 2021

The 11th ARSA

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Background

  • Population decline and labor shortages
    • Some countries have recently been facing population decline, and others are also predicted to do so in the near future
    • Labor shortages are expected to constitute a substantial issue for these countries
    • One of the solutions lies in utilizing a potential labor force
  • Job search in local labor markets
    • What the individuals consider to search for a job is the conditions of labor markets as well as their own personal situations
    • The labor markets which the individuals consider could be local rather than nationwide
    • One of the factors characterizing the conditions of local labor markets is their size, namely a level of urban agglomeration

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Literature

  • Agglomeration economies in job search and matching
    • Individuals’ likelihood of finding a job is high (de Blasio and Di Addario, 2005; Phimister, 2005; Di Addario, 2011)
      • Because of lower search costs and higher expectations to benefit from matching with an attractive job from plenty of offers
    • Improving matching quality (Wheeler, 2001, 2008; Bleakley and Lin, 2012; Andini et al., 2013; Abel and Deitz, 2015)
      • By reducing the gap between the skills of workers and the productivity of firms
  • Heterogenous individual attributes
    • The agglomeration effect on the likelihood of matching with a job is different across
      • Gender (Phimister, 2005; Andini et al., 2013)
      • Ages and skills (Andini et al., 2013)

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Motivation

  • Research question
    1. Whether and how the urban agglomeration affects the decision of a non-working individual to search for a job?
    2. Are the agglomeration effects different across heterogenous individual attributes, such as gender, education, and age?

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  • Contributions to the literature
    • Studying the decision of non-working individuals to search for a job
      • This is a step intervening before the success of individuals in finding jobs or earning wages occurs
      • The investigation into this step is significant since it is a cost to the economy if individuals with enough ability to work do not wish to engage in productive activities

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Theoretical background

  • Non-working individual’s decision problem
    • Bellman equation regarding a value of search (Mortensen, 1986)

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    • A non-working individual compares “searching and accepting the offer wage” or “doing nothing” to maximize his/her welfare

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Present value of searching for a job

Interest rate

Value of leisure

Search cost

distribution of the wage offers

Offer arrival rate

best of random offer wage

 

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Condition of deciding to search

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Interest rate

reservation wage

Value of leisure

= opportunity cost of job search

Search cost

= out-of-pocket cost

of job search

distribution of the wage offers

Offer arrival rate

best of random offer wage

Benefit

Cost

Present value of searching for a job

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Extending the model

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Extending the model

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Extending the model

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Our model

  • New participation condition
    • incorporating the agglomeration effect and the heterogeneity of individual attributes

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    • The level of agglomeration weighted by individual attributes seems to determine whether the participation condition is satisfied
      • Whether and how agglomeration affects the job search decision depends on the difference between the offer wage and the value of leisure/household production determined by individual attributes

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6(4) types of individuals

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Empirical model

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Individual and household characteristics

Survey year dummies

Regional block dummies

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Identification

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Data

  • Individual microdata
    • Source: Japanese Employment Status Survey (8 waves, 1982–2017)
    • Our sample contains individuals who answer not working
    • Number of obs.=1,004,967 in the pooled data
  • Regional agglomeration data (employment density)
    • Source: Establishment and Enterprise Census (6 waves, 1981–2006) and the Economic Census for Business Frame (2009 and 2014)
    • Regional unit:
      • Urban Employment Area (UEA), based on commuting rates across municipalities, proposed by Kanemoto and Tokuoka (2002)
      • A good proxy of the local labor markets in Japan
    • Number of regions=222 UEAs

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Descriptive evidence

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Descriptive evidence

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Results: whole sample

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Results:�Gender, education, and age

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agglomeration-search type

always-search type

(compared with other ages of low educated men)

always-search type

(compared with less educated men)

never-search type

(compared with men)

agglomeration-stop-search type

Offer wage

  • less educated<highly educated
  • men>women

value of leisure/household production

  • men<women

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Source of negative effect

  • Characteristics of less educated women aged 30s

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Labor force participation rates by age group

Female mean age of first marriage and childbirth

  • Married women who raise their children are on average 30s years old
  • They seem to spend their time on housework and childcare rather than working in the labor market

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Results:�Marital status and presence of children

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lower value of leisure/household production

higher value of leisure/household production

(agglomeration-search type -> never-search type -> agglomeration-stop-search type)

always-search type

(compared with less educated men)

higher value of leisure/household production

(always-search type -> never-search type -> never-search type)

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Heterogeneous effects

  • Gender gap
    • the husbands and wives tend to specialize in the paid work in the labor market and household production (e.g., housework and childcare), respectively
    • Life events (i.e., marriage and childbirth) makes the female value of leisure/household production high, especially in urban areas
      • Due to supply shortages of childcare facilities in urban areas

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  • Low and highly educated women
    • (one possible interpretation is that) highly educated women tend to marry highly educated men who earn high wages, therefore, the wives specialize in household production more

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Conclusion

  • Main findings
    • Less educated men benefit from agglomeration, while those with high education and women do not
      • Due to offer wage
    • Life events, such as marriage and childbirth, remarkably change the female response of job search decisions to the agglomeration level
  • Policy implications to utilize potential labor force
    • To utilize inactive men:
      • reinforcement of public employment referral to decrease their out-of-pocket cost of job search in rural areas
      • Vocational training for them in rural areas to increase their offer wage
    • To utilize inactive women:
      • solving shortages of childcare facilities there to reduce their value of leisure/household production

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