A model of endogenous unemployment and commuting.

This paper studies an argument used in favour of commuting subsidies; since commuting further from home takes more time and costs more money, workers will only accept a job far from their residence if they are subsidised. Consequently, the commuting subsidy is necessary to reduce the expected length of an unemployment period and to ensure sufficiently mobile and flexible labour supply and thereby sustain high production possibilities. At the same time as politicians worry about the labour supply they worry about the increasing traffic and the pollution and the increasing congestion around cities. The conflict or trade-off between these two political issues is studied in the paper. The analyses are carried out in a model that describes the households' demand for commuting. The model describes the costs and benefits of commuting by the trade-off between ensuring labour supply and reducing the congestion externality. The model is formulated as a small scale CGE model, where quantitative evaluations can be made as well as qualitative. Different policies aiming at increasing the employment are analysed for their abilities to fulfil the purpose versus the effects on total transport performance and congestion. It is impossible to stimulate labour supply without increasing the traffic and congestion and vice versa. Further, using a CGE model it is possible to measure the importance of this effect. The experiments performed cover increased subsidies to long distance commuting, reductions in labour income taxation, reductions in transport taxes and subsidies to firms for creating jobs. The results indicate that even when using quite drastic policies to reduce unemployment the resulting effects on transport and congestion are much larger than the effects on employment and production, in relative changes. The results additionally showed that the resulting effects on employment, production, congestion and transport performance are larger when the long distance subsidy is increased than for the other policy experiments. For the covering abstract see ITRD E126595.