Search externalities, job-housing distribution and commuting subsidies in a two-city system

In this paper, a search-matching model and the urban spatial equilibrium analysis method are used to investigate the impacts of commuting subsidies on employment, residence and utility of households in a two-city system. The setting and assumptions of the research scenario are as follows. There exist search externalities in labor market that are difficult for participants to internalize, e.g., the job search behavior of the unemployed people will produce crowding and thick-market externalities. Households choose the locations of work and residence, and determine the consumption on non-housing goods within budget to maximize their utilities. Wages, employment and housing prices are endogenous under the integrated framework of land use equilibrium and labor market equilibrium. A case study extracted from the city pair Shanghai and Jiaxing, is conducted for illustrating the effectiveness of the model and method, as well as outputting some empirical insights. For increasing the cross-regional mobility, subsidizing the intracity commuting in high-income city should be stopped, while that in low-income city can effectively guide intercity commuting behaviors, optimize intercity labor allocation and further promote regional economic integration.