Welfare Benefits of Agglomeration and Worker Heterogeneity (original) (raw)

Agglomeration spillovers and wage and housing cost gradients across the urban hierarchy

2009

The tyranny of distance in terms of its effect on median earnings and housing costs is examined for rural and urban US counties. First, we develop a series of distance metrics for an area's remoteness from multiple tiers of the urban hierarchy. Second, we consider geographical access of buyers and sellers through market potential measures typical of those used in empirical studies of the New Economic Geography.

An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality

2015

Using Jones (2014) generalized human capital accounting, we extend the urban accounting model of Desmet and Rossi-Hansberg (2013) to account for the geographic distribution of skills across US metropolitan areas. The methodology allows the productivity of high-skill workers to depend on location advantage and local skill mix; the latter also determines the productivity of low-skill workers. Urban friction, rising with population size, reduces worker consumption relative to their wage income. Amenities for high-skill and low-skill workers in each city are calibrated so that the utility for each skill type is equalized across cities. We examine counterfactual skill-mix distribution across cities and welfare gap between the skill groups by shutting down spatial heterogeneity in location advantage, amenity and excess friction respectively. We show that skill mix becomes more even across cities absent heterogeneity in location advantages or in excess friction but it becomes more disperse...

The welfare implications of spatial interdependence

Journal of Urban Economics, 1978

In a recent issue of this journal, Wheaton [3] proved that, in a standard residential location model with two groups of people who differ in income but not in tastes, and where transportation costs are independent of income, the poor group is made better off by an increase in the income of the rich, while the rich group is made worse off by an increase in the income of the poor. Wheaton's assumptions were quite general. He assumed only that utility is a quasi-concave function of land and a composite good, that land is a normal good, and that marginal transportation costs are positive and the same for both groups. Wheaton's proposition is correct. A generalization to the case of n groups has been proved by Hartwick et al. [2]. However, Wheaton goes on to argue that these comparative statics results carry through when transportation costs are functionally related to income. One would in general expect such a relationship, because time costs are an important part of total transportation costs. Wheaton argues as follows. While this conclusion seems predicated on the assumption that rising income flattens bid rent gradients, it slwuld continue to hoId were the costs of travel to rise sufficiently with greater income and generate steeper bids. In this case, the rich would locate centrally and the poor peripherally.

Agglomeration and welfare: The core–periphery model in the light of Bentham, Kaldor, and Rawls

Journal of Public Economics, 2006

The objective of this paper is to apply different welfare approaches to the canonical model developed by Krugman, with the aim of comparing the only two possible market outcomes, i.e. agglomeration and dispersion. More precisely, we use the Pareto criterion, the compensation criteria put forward by Kaldor, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) except for small range of transport cost values, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. In particular, our analysis cautions against the use of utilitarian welfare functions as a foundation for regional policy recommendations. * We thank Jean Hindriks for very useful comments. Corresponding author: Carl Gaigné,

Spatial Equilibrium in the Labor Market

Over long periods of human history, labor market equilibrium involved movements from low-wage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This “labor economics” view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960’s, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view — assuming a utility equilibrium over space — might better predict and explain the labor market equilibrium. This “urban/regional economics” view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.

Chapter 9. Spatial Equilibrium in the Labor Market

Over long periods of human history, labor market equilibrium involved movements from low-wage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This " labor economics " view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960's, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view—assuming a utility equilibrium over space—might better predict and explain the labor market equilibrium. This " urban/regional economics " view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.

Spatial Equilibrium in Labor Markets

Springer eBooks, 2018

Over long periods of human history, labor market equilibrium involved movements from lowwage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This "labor economics" view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960's, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view-assuming a utility equilibrium over space-might better predict and explain the labor market equilibrium. This "urban/regional economics" view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.

Heterogeneous skills and homogeneous land: segmentation and agglomeration

Journal of Economic Geography, 2013

This paper analyzes the impact of skill heterogeneity on regional patterns of production and housing in the presence of pecuniary externalities within a generalequilibrium framework assuming monopolistic competition at intermediate good markets. It shows that the interplay of heterogenous skills and relatively homogeneous land demand triggers skill segmentation and agglomeration. The core region, being more attractive to high skilled workers, has a disproportionately large share of production at all levels of the supply chain. The paper studies the effects on segmentation and agglomeration of interregional trade in intermediate goods, attachment to home, the presence of immobile unskilled workers, various conditions at local land markets, and federal taxation.

Agglomeration, Tax, And Local Public Goods

Hitotsubashi Journal of Economics, 2013

In this paper, we explore the interaction between taxation and a local public good (LPG) to see how it impacts the spatial pattern in the framework of new economic geography (NEG). In the benchmark case of a pure LPG, the system displays a similar location pattern to the existing NEG taxation model, although the tax reduces the market size of manufactured goods. However, when we consider the inherent congestion of an LPG, we find a new agglomeration force due to the demand of the LPG and a new dispersion force due to its congestion.As a result of their interaction, the congestability is crucial in determining the spatial location pattern.