Land development, search frictions, and city structure

This paper analyzes the interactions between labor and housing (and land) markets in a city. We develop a monocentric city model involving land development and frictional unemployment. Unemployment, the spatial structure of a city, land development, housing demand, prices of housing and land are all endogenously determined in the model. We then characterize two different spatial configurations, spatial mismatch equilibrium in which unemployed workers are located far from jobs and integrated equilibrium in which unemployed workers live in areas close to jobs. To better understand how two equilibria are affected by labor market parameters, such as search intensity, wage, job finding rate, job destruction rate, and so on, we implement a comparative steady state analysis. We further explored the effects of policies such as a tax on land development to subsidize residents, a subsidy to reduce residents f commuting costs, and a subsidy to improve unemployed workers f benefits.