Introduction

In this chapter, we extend the benchmark urban efficiency wage model developed in Section 2 of Chapter 4 in several directions. First, in the next section, we endogenize the effort function, which becomes a negative function of distance to jobs. Indeed, when workers live far away from jobs and experience long commutes, they may be tired when on the job and provide less of a production effort than if they were residing closer to jobs. The main result of this section is to show that profit-maximizing firms determine an optimal recruitment distance beyond which they will hire workers.

Second, in Section 3, we introduce leisure choice in the benchmark model by considering effort and leisure not to be independent activities. Indeed, if one interprets shirking as a leisure activity on the job, the benefits arising from additional leisure activity on the job are obviously related to the extent of leisure activity at home and vice versa. For example, if effort and leisure are substitutes, then low leisure at home may imply that the worker has less time for rest and relaxation and is more pressed for time at home and, as a result, there is an increase in the benefit of taking leisure or conducting home production (relaxation or errands) while at work. We find that, in equilibrium, residing in a location with a long commute affects the trade-off between effort at work and the frequency of unemployment spells by reducing the time available for leisure. This model suggests that either workers' effort at work or wages vary based upon a worker's residential location, depending upon whether firms can discriminate based on residential location.