Frictional spatial equilibrium

Benoit Schmutz and Modibo Sidibé
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Modibo Sidibé: Duke University and CREST

No 2016-29, Working Papers from Center for Research in Economics and Statistics

Abstract: We study the properties of spatial equilibrium in an economy where locations have heterogeneous endowments and the labour market is subject to matching frictions. Both workers and firms make endogenous location decisions, which, in turn, determine the spatial distribution of unemployment, wage and firm density, as well as city population. We explain why diverse urban configurations may coexist in a country without any impediment to labour mobility, and in particular, why homogeneous workers, free to move at will, may be subject to spatial stickiness while welfare is not equalized across space. We also introduce a typology of cities based on the productivity of their local amenities, which describes the comovement of local economic outcomes and we show that the introduction of commercial real estate induces an asymmetry between urban decline and urban growth. Positive (negative) productivity shocks are more (less) likely to increase (decrease) population than rent, rent than wages, and wages than employment.

Keywords: amenities; search frictions; spatial equilibrium. (search for similar items in EconPapers)
JEL-codes: J61 R12 (search for similar items in EconPapers)
Pages: 20
Date: 2016-09
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