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How Urbanization Affects Employment and Social Interactions

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  • Sato, Yasuhiro

    (Osaka University)

  • Zenou, Yves

    (Monash University)

Abstract

We develop a model where the unemployed workers in the city can find a job either directly or through weak or strong ties. We show that, in denser areas, individuals choose to interact with more people and meet more random encounters (weak ties) than in sparsely populated areas. We also demonstrate that, for a low urbanization level, there is a unique steady-state equilibrium where workers do not interact with weak ties, while, for a high level of urbanization, there is a unique steady-state equilibrium with full social interactions. We show that these equilibria are usually not socially efficient when the urban population has an intermediate size because there are too few social interactions compared to the social optimum. Finally, even when social interactions are optimal, we show that there is over-urbanization in equilibrium.

Suggested Citation

  • Sato, Yasuhiro & Zenou, Yves, 2014. "How Urbanization Affects Employment and Social Interactions," IZA Discussion Papers 7914, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp7914
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    More about this item

    Keywords

    urban economics; social interactions; strong ties; weak ties; labor market;
    All these keywords.

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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