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Summary. The spatial mismatch hypothesis is that "Serious limitations on black residential choice, combined with the steady dispersal of jobs from central cities, are responsible for the low rates of employment and low earnings of Afro-American workers" (Kain, 1994, p. 371). Despite a wealth of related empirical studies, there has been little work formalising the hypothesis. This paper presents a trade-theoretic model, with three regions (downtown, suburbia and the rest of the world), four goods (a tradable home good, untraded services, a tradable foreign good and land), and two factors (skilled and unskilled workers). Blacks are constrained to live downtown but by incurring commuting costs can work in suburbia. Several exogenous changes are considered (for example a fall in transport costs between suburbia and the rest of the world) which may lead simultaneously to a fall in the downtown unskilled wage and to job suburbanisation, and which therefore provide a theoretical basis for the hypothesis.
1. Introduction
The spatial mismatch hypothesis was first articulated by John Kain in 1964 (Kain, 1994). Kain's seminal paper (Kain, 1968), `Housing segregation, negro employment, and metropolitan decentralization', provided the first statement and empirical investigation of the hypothesis. Since then there has been a wealth of empirical studies which focus on the hypothesis or relate to some aspect of it; Kain's recent review paper (Kain, 1994), `The spatial mismatch hypothesis: three decades later', contains almost 200 items in its bibliography. In that article, Kain states the hypothesis as follows (p. 371):
Serious limitations on black residential choice, combined with the steady dispersal of jobs from central cities, are responsible for the low rates of employment and low earnings of Afro-American workers.
There is little dispute about the empirical basis of the hypothesis: that there are, or at least have been, serious limitations on black residential choice; that there has been a steady dispersal of jobs from central cities; and that rates of employment and earnings of Afro-American workers are relatively low.' Thus, the essence of the hypothesis is causal-that the combination of job suburbanisation and housing discrimination has worsened the labour market situation for blacks. One can distinguish between strong and weak forms of the hypothesis, depending on how "are responsible for" is interpreted. The strong form is that...