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Urban Unemployment and City Formation. Theory and Policy Implications

  • Zenou, Yves

    (CERAS, Ecole National des Ponts et Chaussées)

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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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
Contact details of provider: 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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  1. repec:fth:inseep:9722 is not listed on IDEAS
  2. 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).
  3. E Wasmer & Y Zenou, 1997. "Equilibrium Urban Unemployment," CEP Discussion Papers dp0368, Centre for Economic Performance, LSE.
  4. 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.
  5. 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.
  6. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  7. 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.
  8. 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.
  9. repec:cup:cbooks:9780521346627 is not listed on IDEAS
  10. Albrecht, James W & Axell, Bo, 1983. "An Equilibrium Model of Search Unemployment," Working Paper Series 99, Research Institute of Industrial Economics.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  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. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  17. 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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