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Dual Labor Markets, Urban Unemployment, and Multicentric Cities

  • Smith, Tony E.
  • Zenou, Yves

In this paper a two-sector model of urban unemployment is developed which focuses on the formation of a secondary sector under conditions in which a demand shock in the primary sector leads to a sharp increase in unemployment. The optimal location in the secondary sector is shown to be at the edge of the city, giving rise to a multicentric urban spatial structure. Within this spatial structure, we establish conditions under which the new labour market equilibrium involves not only a decrease in unemployment, but also an increase in net income for those unemployed. These results are extended to the case in which all unemployment benefits are financed by local taxation of firms. In this context, it is shown that when taxation discourages entry of a secondary sector, there may be profit incentives for the primary sector to subsidize the entry of a secondary sector.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 76 (1997)
Issue (Month): 1 (September)
Pages: 185-214

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Handle: RePEc:eee:jetheo:v:76:y:1997:i:1:p:185-214
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  1. McMillen, Daniel P. & Singell, Larry Jr., 1992. "Work location, residence location, and the intraurban wage gradient," Journal of Urban Economics, Elsevier, vol. 32(2), pages 195-213, September.
  2. Zenou, Yves & Smith, Tony E., 1995. "Efficiency wages, involuntary unemployment and urban spatial structure," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 547-573, August.
  3. Albrecht, James W. & Vroman, Susan B., 1990. "Dual Labor Markets, Efficiency Wages, and Search," Working Paper Series 267, Research Institute of Industrial Economics.
  4. Ross, Stephen & Yinger, John, 1995. "Comparative static analysis of open urban models with a full labor market and suburban employment," Regional Science and Urban Economics, Elsevier, vol. 25(5), pages 575-605, October.
  5. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-87, January.
  6. Henderson, Vernon & Mitra, Arindam, 1996. "The new urban landscape: Developers and edge cities," Regional Science and Urban Economics, Elsevier, vol. 26(6), pages 613-643, December.
  7. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-56, December.
  8. Jackman, R. & Layard, R., 1989. "The Real Effects Of Tax-Based Incomes Policies," Papers 341, London School of Economics - Centre for Labour Economics.
  9. Helsley, Robert W. & Sullivan, Arthur M., 1991. "Urban subcenter formation," Regional Science and Urban Economics, Elsevier, vol. 21(2), pages 255-275, July.
  10. Smith, T. E. & Zenou, Y., . "Dual labor markets, urban unemployment, and multicentric cities," CORE Discussion Papers RP 1283, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. White, Michelle J., 1988. "Location choice and commuting behavior in cities with decentralized employment," Journal of Urban Economics, Elsevier, vol. 24(2), pages 129-152, September.
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  13. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
  14. Dickens, William T & Lang, Kevin, 1985. "A Test of Dual Labor Market Theory," American Economic Review, American Economic Association, vol. 75(4), pages 792-805, September.
  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. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  17. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
  18. James B. Rebitzer & Lowell J. Taylor, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1373-1383.
  19. Haug, Peter, 1984. "Regional Policy Incentives in the Scottish Electronics Industry: Survey Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 31(3), pages 274-83, November.
  20. Madden, Janice Fanning, 1985. "Urban wage gradients: Empirical evidence," Journal of Urban Economics, Elsevier, vol. 18(3), pages 291-301, November.
  21. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
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  23. Eberts, Randall W., 1981. "An empirical investigation of intraurban wage gradients," Journal of Urban Economics, Elsevier, vol. 10(1), pages 50-60, July.
  24. Steinnes, Donald N., 1977. "Causality and intraurban location," Journal of Urban Economics, Elsevier, vol. 4(1), pages 69-79, January.
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