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Three keys to the city: resources, agglomeration economies, and sorting

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  • Gerald A. Carlino

Abstract

Metropolitan areas in the U.S. contain almost 80 percent of the nation’s population and nearly 85 percent of its jobs. This high degree of spatial concentration of people and jobs leads to congestion costs and higher housing costs. To offset these costs, workers must receive higher wages, and higher wages increase firms’ costs. So why do firms continue to produce in cities where the cost of doing business is so high? Economists offer three main explanations. First, cities developed and grew because of some natural advantage, such as a port. Second, as cities grew, the resulting concentration of people and jobs led to efficiency gains and cost savings for firms, creating agglomeration economies. Finally, the presence of a talented and flexible labor force made it feasible for entrepreneurs to start new businesses. This third reason for the growth of cities is called sorting. In “Three Keys to the City: Resources, Agglomeration Economies, and Sorting,” (351 KB, 13 pages) Jerry Carlino looks at recent developments in measuring each of the sources of city productivity and discusses the policy implications of this research

Suggested Citation

  • Gerald A. Carlino, 2011. "Three keys to the city: resources, agglomeration economies, and sorting," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 1-13.
  • Handle: RePEc:fip:fedpbr:y:2011:i:q3:p:1-13
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    File URL: http://www.philadelphiafed.org/research-and-data/publications/business-review/2011/q3/brq311_three-keys-to-the-city.pdf
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    References listed on IDEAS

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    1. Carlino, Gerald A. & Saiz, Albert, 2008. "City Beautiful," IZA Discussion Papers 3778, Institute for the Study of Labor (IZA).
    2. Bleakley, Hoyt & Lin, Jeffrey, 2012. "Thick-market effects and churning in the labor market: Evidence from US cities," Journal of Urban Economics, Elsevier, vol. 72(2), pages 87-103.
    3. Jeffrey Lin, 2011. "Technological Adaptation, Cities, and New Work," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 554-574, May.
    4. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
    5. Satyajit Chatterjee, 2003. "Agglomeration economies: the spark that ignites a city?," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 6-13.
    6. Morris A. Davis & Jonas D. M. Fisher & Toni M. Whited, 2014. "Macroeconomic Implications of Agglomeration," Econometrica, Econometric Society, vol. 82(2), pages 731-764, March.
    7. Jeffrey Lin, 2011. "Urban productivity advantages from job search and matching," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 9-16.
    8. Nathaniel Baum-Snow, 2007. "Did Highways Cause Suburbanization?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 775-805.
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    Cited by:

    1. Brinkman, Jeffrey, 2015. "Big cities and the highly educated: what's the connection," Business Review, Federal Reserve Bank of Philadelphia, issue Q3, pages 10-15.

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    Keywords

    Metropolitan areas ; Urban economics;

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