Introduction

In this chapter, we will use the models and results of Part 1 to provide some mechanisms for the spatial mismatch hypothesis. In Section 2, we will adapt the models developed in Chapter 1 to explain the spatial mismatch hypothesis. In this perspective, distance to jobs prevents black workers from obtaining job information, thus isolating them from employment centers. Indeed, little information reaches the area where blacks live, which reduces their search efficiency and thus, their probability of finding a job. We will show that a policy that gives transport subsidies to black workers can increase job creation and the unemployment rate of black workers only if the level of the subsidy is sufficiently high compared to the tax on firms' profits.

Then, in Section 3, we assume that the fixed entry cost of firms is greater in the Central Business District (CBD) than in the Suburban Business District (SBD) and that workers are heterogeneous in their disutility of transportation (or, equivalently, in their search costs). These two fundamental assumptions are sufficient to generate an equilibrium where central city residents (blacks) experience a higher rate of unemployment than suburban residents (whites) and suburban firms create more jobs than central firms (a higher job vacancy rate).

Finally, in the last section, we will show that different transport modes between blacks and whites lead to different search intensities and thus, different probabilities of finding a job. We develop a theoretical model where whites mainly use cars to commute, whereas blacks use public transportation.