42nd Congress of the European Regional Science Association: "From Industry to Advanced Services - Perspectives of European Metropolitan Regions", August 27th - 31st, 2002, Dortmund, Germany
Interactions between regions are important when the labour market and infrastructure are considered. Both labour market and infrastructure are closely related. Employment generates commuting, better infrastructure may result in more jobs, and both employment and infrastructure effects interact with the location of the labour force. To investigate these relationships an interregional general equilibrium model has been constructed. The point of departure is a search equilibrium model in which unemployment occurs because it takes time to match a vacancy with an unemployed worker (fractional unemployment). A heterogeneous labour force differs with respect to taste of leisure and taste of residence. Factors such as regional wage levels, unemployment benefits, regional taxes, tax deductions for commuting, consumer prices, distance, commuting costs, utility of leisure, and utility of residence, determine the equilibrium of the economy. An experiment illustrates the features of the model.