Residential immobility, on-the-job search, and labor-market adjustment

This paper develops a search-and-matching model in which residential immobility affects the role of on-the-job search in labor-market adjustment. When residential relocation is costly, workers who face an imperfect spatial match may use labor-market mobility as an alternative margin of spatial adjustment. After accepting employment, workers can engage in on-the-job search to improve the geographical quality of their employment match while remaining attached to their residence and reducing commuting distance. The intensity of this search depends on the value of improving the spatial match and therefore on the distance between residence and workplace. We show that job-to-job transitions induced by spatial adjustment increase the effective separation rate perceived by firms and enlarge the pool of workers participating in the matching process. These effects reduce labor-market tightness and equilibrium wages and increase unemployment, while the effect on vacancy creation is ambiguous. Homeownership provides an important economic context for the mechanism because housing attachment can generate substantial residential immobility, but the framework applies more generally to workers facing costly residential relocation. The analysis identifies a channel through which residential immobility can affect labor-market outcomes by changing the incentives and externalities associated with on-the-job search.