Urban Unemployment and City Formation: Theory and Policy Implications
1999 (English)Report (Other academic)
We study the role of unemployment in the context of the endogeneous formation of a monocentric city where firms set efficiency wages to deter shirking. We first show that in equilibrium the emploed 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 uniqueness of both the labor 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 commuting costs of 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.
Place, publisher, year, edition, pages
Stockholm: IIES , 1999. , 41 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 662
Efficiency wages, Agglomeration economies, Endogeneous location of workers and firms, Urban unemployment, subsidizing commuting costs
IdentifiersURN: urn:nbn:se:su:diva-41087OAI: oai:DiVA.org:su-41087DiVA: diva2:328248
Published in connection with a visit at the IIES2010-07-022010-07-022010-07-07Bibliographically approved