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Urban Unemployment and City Formation. Theory and Policy Implications

Author

Listed:
  • Zenou, Yves

    (CERAS, Ecole National des Ponts et Chaussées)

Abstract
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.

Suggested Citation

  • Zenou, Yves, 1999. "Urban Unemployment and City Formation. Theory and Policy Implications," Seminar Papers 662, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0662
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    References listed on IDEAS

    as
    1. 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.
    2. Wasmer, E. & Zenou, Y., 1997. "Equilibrium Urban Unemployment," DELTA Working Papers 97-15, DELTA (Ecole normale supérieure).
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    Cited by:

    1. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    2. Assar Lindbeck, 2002. "Pensions and Contemporary Socioeconomic Change," NBER Chapters, in: Social Security Pension Reform in Europe, pages 19-48, National Bureau of Economic Research, Inc.
    3. Lindbeck, A. & Wikstrom, S., 1999. "The ICT Revoluation in Consumer Product Markets," Papers 670, Stockholm - International Economic Studies.
    4. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies.

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    More about this item

    Keywords

    Efficiency Wages; Agglomeration economies; Endogenous Location of Workers and Firms; Urban Unemployment; Subsidizing Commuting Costs;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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