Urban Transit Infrastructure: Spatial Mismatch and Labor Market Power

With Felipe Vial Lecaros and Román David Zárate

Abstract: Does transit infrastructure reduce labor market power? This paper estimates the effects of a large subway expansion on local labor market outcomes in Santiago, Chile. Using a linked employer-employee dataset with spatial information on workers and firms, we estimate the effects of the network expansion on the most-affected workers and firms through a reduced-form analysis. We find changes in work locations and wages consistent with a reduction in firms’ labor market power around areas that were connected to the subway network after the expansion. We then lay out a quantitative spatial equilibrium model where firms behave as oligopsonies in the labor market to calculate the welfare gains from the transit infrastructure expansion. Our model allows us to decompose the welfare gains into: i) the efficiency gains through improved matching between workers and firms, and ii) the gains from reduced factor misallocation. The model also provides a framework to analyze the distributional implications of reduced labor market power for workers and firms.