Recruitment in a Monopsonistic Labour Market: Will Travel Costs be reimbursed?

Reimbursement of commuting costs by employers has attracted little attention from economists. We develop a theoretical model of a monopsonistic employer who determines an optimal recruitment policy – in a spatial labour market with search frictions, and show that, in general, partial reimbursement of commuting cost will be an element of the recruitment policy. The empirical evidence we offer is consistent with the interpretation of reimbursement as the result of monopsonistic behaviour. The alternative explanation, which stresses the role of tax incentives, is unlikely to provide a full explanation of commuting costs reimbursement. JEL classification: J33