Discussion Paper Details

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Title: Urban Unemployment, Agglomeration and Transportation Policies

Author(s): Yves Zenou

Publication Date: December 1999

Keyword(s): Efficiency Wages, Endogenous Location Of Workers And Firms, Spatial Mismatch, Subsidizing Commuting Costs and Urban Unemployment

Programme Area(s): Labour Economics

Abstract: We study the role of unemployment in the context of the endogeneous formation of a monocentric city in which firms set efficiency wages to deter shirking. We first show that, in equilibrium, the employed locate at the vicinity of the city-centre, the unemployed reside at the city-edge and firms set up in the city-centre. We then show that there is a `spatial mismatch' between location and jobs because the further away from jobs the unemployed, the larger the level of unemployment. Finally, we derive some policy implications. We show that a policy that improves the city transportation network (by subsidizing the commuting costs of all workers) reduces urban unemployment, increasing utilities of all workers but also raising inequality, whereas a policy that supports the transportation of the unemployed only (by subsidizing their commuting costs) increases urban unemployment, not always raising workers' utilities, but reducing inequality.

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Bibliographic Reference

Zenou, Y. 1999. 'Urban Unemployment, Agglomeration and Transportation Policies'. London, Centre for Economic Policy Research.