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

The inability of the free market to lead to a balanced regional labor market equilibrium has been explained to a certain extent by the spatial mismatch hypothesis: “housing segregation” explains a deadlock situation where a “center” with high unemployment and low income coexists with “suburbs” with high labor demand and income. The author proposes a framework for a theoretical general equilibrium model that may explain the existence of a spatial equilibrium with inequalities in employment and income in various regions. This model explains the interregional imbalances on the labor demand side due to the changes in relative land prices and agglomeration economies and diseconomies in three separate types of economic sectors. On the labor supply side, the model suggests a pattern of a commuting–migration relationship by which labor migrates for housing reasons while retaining present jobs and commuting back to them. Government intervention through influence on travel costs, education, and land allocation can lead to the diminution of such interregional gaps.