The Effects of Housing Prices, Wages, and Commuting Time on Joint Residential and Job Location Choices

Abstract An empirical model of joint decisions of where to live and where to work demonstrates that individuals make residential and job location choices by trading off wages, housing prices, and commuting costs. Wages are higher in metropolitan markets, but housing prices are also higher in urban areas. Consumers can live in lower priced nonmetropolitan houses and still earn urban wages, but they incur commuting costs that increase with distance from the city. Improvements in transportation that lower commuting time will increase nonmetropolitan populations and will increase the number of nonmetropolitan commuters to metropolitan markets. Equal wage growth across labor markets causes a shift in relative population from rural to urban markets, while an equiproportional increase in housing prices causes a population shift toward rural areas.