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Urban Unemployment and City Formation. Theory and Policy Implications

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  • Zenou, Yves

    (CERAS, Ecole National des Ponts et Chaussées)

Abstract

We study the role of unemployment in the context of endogenous formation of a monocentric city where firms set efficiency wages to deter shirking. We first show that in equilibrium the employed locate at the vicinity of the city-center, the unemployed reside at the city-edge and firms set up in the city-center. We then establish conditions that ensure existence and uniquenes of both the labour-market equilibrium and the (monocentric) equilibrium urban configuration. Last, we perform different comparative statics analyses and derive some policy implications. We show in particular that a policy subsidizing the commuter costs of both the employed and unemployed workers reduces urban unemployment, increases utilities of all workers but raises inequality whereas a policy that subsidizes only unemployed workers' commuting costs increases urban unemployment, does not always raise workers' utilities but cuts inequality.

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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 662.

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Length: 41 pages
Date of creation: 13 Jan 1999
Date of revision:
Handle: RePEc:hhs:iiessp:0662

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Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/
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Keywords: Efficiency Wages; Agglomeration economies; Endogenous Location of Workers and Firms; Urban Unemployment; Subsidizing Commuting Costs;

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References

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  1. Gannon, F. & Zenou, Y., . "Segregation and labor discrimination in cities," CORE Discussion Papers RP -1261, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Hartwick, John & Schweizer, Urs & Varaiya, Pravin, 1976. "Comparative statics of a residential economy with several classes," Journal of Economic Theory, Elsevier, vol. 13(3), pages 396-413, December.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Fujita,Masahisa, 1989. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521346627, October.
  5. Fujita, Masahisa & Krugman, Paul, 1995. "When is the economy monocentric?: von Thunen and Chamberlin unified," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 505-528, August.
  6. Etienne Wasmer & Yves Zenou, 1997. "Equilibrium Urban Unemployment," Working Papers 97-22, Centre de Recherche en Economie et Statistique.
  7. Fujita, M. & Thisse, J.-F., . "Economics of agglomeration," CORE Discussion Papers RP -1250, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Brueckner, Jan K., 1987. "The structure of urban equilibria: A unified treatment of the muth-mills model," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 20, pages 821-845 Elsevier.
  9. Brueckner, Jan K. & Martin, Richard W., 1997. "Spatial mismatch: An equilibrium analysis," Regional Science and Urban Economics, Elsevier, vol. 27(6), pages 693-714, November.
  10. Miyao, Takahiro, 1975. "Dynamics and comparative statics in the theory of residential location," Journal of Economic Theory, Elsevier, vol. 11(1), pages 133-146, August.
  11. Fujita, Masahisa & Mori, Tomoya, 1997. "Structural stability and evolution of urban systems," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 399-442, August.
  12. repec:fth:inseep:9722 is not listed on IDEAS
  13. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
  14. Coulson, N Edward & Laing, Derek & Wang, Ping, 2001. "Spatial Mismatch in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 949-72, October.
  15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  16. Papageorgiou, Yorgo Y & Smith, Terrence R, 1983. "Agglomeration as Local Instability of Spatially Uniform Steady-States," Econometrica, Econometric Society, vol. 51(4), pages 1109-19, July.
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Cited by:
  1. Lindbeck, A. & Wikstrom, S., 1999. "The ICT Revoluation in Consumer Product Markets," Papers 670, Stockholm - International Economic Studies.
  2. Lindbeck, Assar, 2000. "Pensions and Contemporary Socioeconomic Change," Seminar Papers 685, Stockholm University, Institute for International Economic Studies.
  3. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
  4. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies.

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