An empirical on-the-job search model with preferences for relative earnings: How high is the value of commuting time?

The purpose of this paper is to estimate the average value of commuting time (VoCT) in an empirical on-the-job search model. A large Swedish sample of employee-establishment linked data obtained from administrative registers is used to this end. The sample contains detailed information on the individuals' place of residence and place of work and it is combined with information on travel times and travel distances in the road network. We use two empirical models of the individuals' utility function: a basic model and an augmented model. The latter introduces a set of variables intended to capture the effect of interpersonal comparisons of earnings and commuting times in the individual's utility function and on the estimated VoCT. The basic model suggests the average VoCT to be as high as 232 Swedish kronor (SEK) per hour, which is about two and half times higher than the net hourly wage rate in the sample. If we discard the effect of interpersonal comparisons of earnings and commuting time on job switching, the augmented model instead suggests a value of time of 94 SEK, which is more or less equal to the net hourly wage rate in the sample.