Urban unemployment, agglomeration and transportation policies

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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-center, the unemployed reside at the city-edge and firms set up in the city-center. 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, increases utilities of all workers but raises inequality whereas a policy that supports the transportation of the unemployed only (by subsidizing their commuting costs) increases urban unemployment, does not always raise workers' utilities but reduces inequality.

Original languageEnglish
Pages (from-to)97-133
Number of pages37
JournalJournal of Public Economics
Issue number1
Publication statusPublished - 1 Jul 2000
Externally publishedYes


  • Efficiency wages
  • Endogeneous location of workers and firms
  • J64
  • R14
  • Spatial mismatch
  • Subsidizing commuting costs
  • Urban unemployment

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