Location, Search Costs and Youth Unemployment: A Randomized Trial of Subsidized Transport in Ethiopia

Abstract

The rapid growth of African cities has often not come with corresponding investments in infrastructure and well located housing stock, leading to congestion and an increasing number of people living on the outskirts of cities, far away from jobs. This paper examines whether high search costs affect the labor market outcomes of job seekers who live far away from jobs. For the study, the author randomly assigned transport subsidies to unemployed youth in urban Ethiopia. The subsidies covered the cost of transport to the city center, but no more, for two days each week for a preset period of time, an approach that reduced search costs without reducing the cost of commuting to work in the long run. He found that lowering transport costs increased the intensity of job search and the likelihood of finding good employment. The paper uses a dynamic model of cash constraints to explain the mechanisms driving the results. The predictions of the model closely matched the trajectory of estimated effects over time, which were measured using a weekly phone call survey. This paper is a part of a Global Research Program on Spatial Development of Cities, funded by the Multi Donor Trust Fund on Sustainable Urbanization of the World Bank and supported by the UK Department for International Development