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How Urbanization Affect Employment and Social Interactions

  • Yasuhiro Sato

    ()

    (Graduate School of Economics, Osaka University)

  • Yves Zenou

    ()

    (Research Institute of Industrial Economics (IFN), Stockholm University)

We develop a model where 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.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1332.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 13-32.

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Length: 43 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:osk:wpaper:1332
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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