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Frictional spatial equilibrium

Author

Listed:
  • Benoît Schmutz

    (Howard University and CREST)

  • Modibo Sidibé

    (Duke University and CREST)

Abstract

We study the properties of spatial equilibrium in an economy where locations have heterogeneous endowments and the labour market is subject to matching frictions. Both workers and firms make endogenous location decisions, which, in turn, determine the spatial distribution of unemployment, wage and firm density, as well as city population. We explain why diverse urban configurations may coexist in a country without any impediment to labour mobility, and in particular, why homogeneous workers, free to move at will, may be subject to spatial stickiness while welfare is not equalized across space. We also introduce a typology of cities based on the productivity of their local amenities, which describes the comovement of local economic outcomes and we show that the introduction of commercial real estate induces an asymmetry between urban decline and urban growth. Positive (negative) productivity shocks are more (less) likely to increase (decrease) population than rent, rent than wages, and wages than employment.

Suggested Citation

  • Benoît Schmutz & Modibo Sidibé, 2016. "Frictional spatial equilibrium," Working Papers 2016-29, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2016-29
    as

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    File URL: http://crest.science/RePEc/wpstorage/2016-29.pdf
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    References listed on IDEAS

    as
    1. Michael Amior & Alan Manning, 2018. "The Persistence of Local Joblessness," American Economic Review, American Economic Association, vol. 108(7), pages 1942-1970, July.
    2. Robert Shimer, 2007. "Mismatch," American Economic Review, American Economic Association, vol. 97(4), pages 1074-1101, September.
    3. Zenou, Yves, 2009. "Search in cities," European Economic Review, Elsevier, vol. 53(6), pages 607-624, August.
    4. Matthias Wrede, 2015. "Wages, Rents, Unemployment, And The Quality Of Life: A Consistent Theory‐Based Measure," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 609-625, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    amenities; search frictions; spatial equilibrium.;
    All these keywords.

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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