THE SOURCES OF URBAN DEVELOPMENT: WAGES,HOUSING, AND AMENITY GAPS ACROSS AMERICAN CITIES*

ABSTRACT This paper asks whether worker utility levels—composed of wages, rents, and amenities—are being equalized among American cities. Using microdata on U.S. urban workers in 1980 and 2000, little evidence of equalization is found. Comparable workers earn higher real wages in large cities, where amenities are also concentrated. Moreover, population growth between 1980 and 2000 has not been significantly different in low‐ and high‐utility cities, suggesting that other forces are at work shaping the sorting processes that match workers and firms. We outline an alternative view of the drivers of change in the American urban system, and urban development more generally, by applying theory from economic geography.     

The changing geography of the Canadian manufacturing sector in metropolitan and rural regions, 1976–1997

This paper documents the changing geography of the Canadian manufacturing sector over a 22‐year period (1976–1997). It does so by looking at the shifts in employment and differences in production worker wages across different levels of the rural/urban hierarchy—central cities, adjacent suburbs, medium and small cities and rural areas. The analysis demonstrates that the most dramatic shifts in manufacturing employment were from the central cities of large metropolitan regions to their suburbs. Paralleling trends in the United States, rural regions of Canada have increased their share of manufacturing employment. Rising rural employment shares were due to declining employment shares of small cities and, to a lesser degree, large urban regions. Increasing rural employment was particularly prominent in Quebec, where employment shifted away from the Montreal region. The changing fortunes of rural and urban areas were not the result of across‐the‐board shifts in manufacturing employment, but were the net outcome of differing locational patterns across industries. In contrast to the situation in the United States, wages in Canada do not consistently decline, moving down the rural/urban hierarchy from the largest cities to the most rural parts of the country. Only after controlling for the types of manufacturing industries found in rural and urban regions is it apparent that wages decline with the size of place .     

Consumer city

Urban economics has traditionally viewed cities as having advantagesin production and disadvantages in consumption. We argue thatthe role of urban density in facilitating consumption is extremelyimportant and understudied. As firms become more mobile, thesuccess of cities hinges more and more on cities' role as centresof consumption. Empirically, we find that high amenity citieshave grown faster than low amenity cities. Urban rents havegone up faster than urban wages, suggesting that the demandfor living in cities has risen for reasons beyond rising wages.The rise of reverse commuting suggests the same consumer cityphenomena.l     

A theoretical framework for evolutionary economic geography: industrial dynamics and urban growth as a branching process

We propose a framework that specifies the process of economicdevelopment as an evolutionary branching process of productinnovations. Each product innovation provides a growth opportunityfor an existing firm or a new firm, and for an existing cityor a new city. One can then obtain both firm size and city sizedistributions as two aggregates resulting from a single evolutionaryprocess. Gains from variety at the firm level (economies ofscope) and the urban level (Jacobs externalities) provide thecentral feedback mechanism in economic development generatingstrong path dependencies in the spatial concentration of industriesand the specialization of cities. Gains from size are also expected,yet these are ultimately bounded by increasing wages. The contributionof our framework lies in providing a micro-foundation of economicgeography in terms of the interplay between industrial dynamicsand urban growth. The framework is sufficiently general to investigatesystematically a number of stylized facts in economic geography,while at the same time it is sufficiently flexible to be extendedsuch as to become applicable in more specific micro-contexts.A number of extensions related to the concepts of knowledgespillover and lock-in, are also discussed.     

HOUSING CONSUMPTION DECLINES WITH INCOME IN THE OPEN‐CITY MODEL: THEORY AND EMPIRICAL EVIDENCE

This paper demonstrates that the standard urban model (SUM) has important, previously unknown, and rather counterintuitive predictions about the determinants of housing consumption in cities. For example, the SUM predicts that, as higher wages in the central business district prompt city growth, the housing space per household falls, that is, rising income is associated with falling housing consumption. Empirical testing using a specially constructed panel data set of U.S. cities, confirms this prediction. When city size, income, and housing price rise, housing space per household falls.     

THE MAGNITUDE AND CAUSES OF AGGLOMERATION ECONOMIES*

ABSTRACT Firms and workers are much more productive in large and dense urban environments. There is substantial evidence of such agglomeration economies based on three approaches. First, on a clustering of production beyond what can be explained by chance or comparative advantage. Second, on spatial patterns in wages and rents. Third, on systematic variations in productivity with the urban environment. However, more needs to be learned about the causes of agglomeration economies. We have good models of agglomeration through sharing and matching, but not a deep enough understanding of learning in cities. Despite recent progress, more work is needed to distinguish empirically between alternative causes.     

HISTORY,INSTITUTIONS, AND CITIES: A VIEW FROM THE AMERICAS*

ABSTRACT Every nation, formally or informally, defines and establishes the lines of political and fiscal authority among its national, regional, and local governments. Historically, centralized governments tend to restrict the power and autonomy of provincial and local governments. In this paper, we exploit the quasi‐experimental distribution of political institutions in the Americas caused by variation in European colonial experience to examine the impact of institutions on urban and local development, specifically on the degree of urban primacy, the size distribution of cities, the number and density of local government units, and the fragmentation of metropolitan areas. We argue that centralization of political power at the national level, as experienced in many countries in Latin America, contributes to urban primacy and a size distribution of cities favoring large cities. Additionally, even in more politically decentralized countries such as Canada and the U.S., variance in political centralization at the provincial (state) level over local governments led to significant divergences in urban primacy, the distribution of city sizes, as well as the form, number, and density of local governments. While we cannot rule out the importance of other factors, our findings suggest that political centralization affects spatial economic development.     

Residential location,workplace location and car driving in four Norwegian cities

Based on a study in four Norwegian cities (Oslo, Stavanger/Sandnes, Bergen and Trondheim) differing in size and centre structure, this article illuminates how residential and workplace location, local-area density and transit accessibility influence different aspects of travel behaviour. We find strong effects of residential and workplace distance to the city centre on overall driving distances and commuting distances. We also find clear effects of local area densities around residences and workplaces on the choice of car as a travel mode, along with less pronounced effects of the distance from dwellings and workplaces to the city centre. In the cities with the best developed transit provision, we also see clear effects of transit accessibility at the residence on the propensity of choosing the car as travel mode. The results provide strong support of Norwegian national policies of urban densification as a planning strategy to curb the growth in urban motoring. However, although the influences of urban structure on travel show many similarities across the four cities, there are also important differences reflecting variations in centre structure (predominantly mono- or polycentric) and population size. The magnitude of the influences of various urban structural characteristics on travel behaviour are thus highly context-dependent.     

Contrasts between first-tier and second-tier cities in Europe: a functional perspective

Second-tier cities have been experiencing renewed interest within policy and research contexts, which is reversing a tradition of relative neglect due to the long-standing focus on large cities and capitals. This paper compares European second-tier and first-tier cities with regard to the presence of urban functions and how these are spread over their urban regions. The analysis shows the existence of a substantial ‘first city bonus’: a surplus of urban functions in first-tier cities which cannot be explained by their size or network embeddedness. We also show that second-tier cities are better served with urban functions in the absence of a dominant capital. In first-tier urban regions, the core municipality exploits the critical mass of the urban region to support its own functions, leaving that region functionally underserved. Second-tier cities lack this absorptive capacity, and their urban regions are endowed with more urban functions. These functional differences mean that second-tier cities demand a differentiated research and policy approach, in which city-regional integration becomes an important territorial development strategy. Rather than the dispersion process in first-tier cities leading to a ‘regionalization of the city’, integration in second-tier urban regions may be seen as a process of ‘citification of the region’.     

Labor Specialization, Transport Costs, and City Size

This paper proposes a simple model of pre-industrial urbanization. Agglomeration stems from increasing returns generated by the specialization of labor, whereas dispersion is provoked by the transport costs of the agricultural good. Considering the existence of some urban institutions (in particular guilds), the equilibrium size of cities is derived and it is efficient. Within this framework, the effects of urban domination (e.g., taxation of agriculture) and the emergence of primate cities are explored. Finally, the transition between early and modern urbanization is studied.     

The landscapes of professional farms in mid‐sized cities,France

In this paper, we provide a spatial analysis of agriculture in three mid‐sized French cities, with a particular focus on professional farms. The existence of important agricultural spaces inside the cities is confirmed. We reveal the persistence of a field‐based, market‐oriented agriculture in French mid‐sized cities, often ignored in studies on urban agriculture, and usually made invisible. Our results highlight the farms' diversity, as well as a diversity of farmers' viewpoints on the relations between urban and agricultural places. We emphasise the importance of three main determinants in the observed dynamics: the cities' geographies; the impact on farmers of land speculation and urbanisation; and the implementation of resistance and adaptation processes by some farmers. These results are discussed in relation to the literature on urban and peri‐urban agriculture.     

Urban bound migration and rural investment: the case of Mexico

The authors investigate an agriculturally based policy for improving rural incomes and for retarding the rural-urban migration flow. The production of agricultural goods is characterized by a production function in which output increases with increases in agricultural labor inputs, capital, public infrastructure, land, and technology. Differences among regions in agricultural technology will reflect regional differences in education, the institutionalized form of productive organization, and differences in access to technological information channeled through more technically advanced cities. To pick up the effect of out-migration changes in state agricultural labor supply and upon agricultural output, the state's agricultural out-migration rate is included together with the agricultural labor force. The gross migrant flow between 2 locations is hypothesized to depend upon a set of variables influencing the individual's perception of the economic rate of return to be gained by moving, a set of variables reflecting the individual's propensity to relocate, the labor displacement effects of investments, and the at risk population at 1 location available to migrate. It is also taken into account that individuals differ in their response to information about origin and destination wage differentials and that individuals may or may not perceive a new ecnomic gain from migration but may base the decision on other considerations. Results of a statistical analysis using data from the Mexican census of population for 1960 and 1970 are: 1) size of the rural labor force was negatively associated with agricultural wages, contrary to expectations; 2) small farmers have benefited from the expansion of irrigation in Mexico; and 3) higher urban wages attract migration, and higher growth rate of agricultural income retards rural-urban migration. With respect to the 1950-60 decade both agricultural income and rural out-migration impacts could have been substantial but both the impact on local urban growth and on the rate of in-migration to the primate city would have been slight.     

TESTING URBANIZATION ECONOMIES IN MANUFACTURING INDUSTRIES: URBAN DIVERSITY OR URBAN SIZE?

ABSTRACT Whether urbanization economies stem from urban diversity or urban scale is not clear in the literature. This paper uses the 2004 China manufacturing census data and tests simultaneously the effects of urban size and industrial diversity on firm productivity, controlling for localization economies and human capital externalities. We find that productivity increases with city size—but at a diminishing rate, and the city size effect becomes negative for cities with population over two million. Firms also benefit from industrial diversity, and the strength of such benefit increases with city size but decreases with firm size. The characteristics of agglomeration economies in a transition economy are also discussed.     

AGGLOMERATION EFFECTS IN COLOMBIA

I estimate an elasticity of wages with respect to city population of about 5 percent for Colombian cities. This finding is robust to a number of econometric concerns. The second main finding is a negative effect of market access on wages. Third main finding regards stronger agglomeration effects in the informal sector. In turn, this explains a range of other negative findings, including only weak evidence in favor of human capital externalities, no evidence of a complementarity between cities and skills, and an absence of learning effects. I do not find measurable effects of roads or amenities on wages either.     

Migration,Frictional Unemployment,and Welfare‐Improving Labor Policies*

Abstract. Studies have suggested that there exists job search and recruiting friction in urban areas. This paper constructs a two‐sector (rural and urban) model involving this factor and investigates how it affects migration and what the optimal policies should be. An analysis shows that frictional urban unemployment brings about intersector wage differentials and that an economy almost always has distortion in the absence of government intervention. Tax and subsidy policies that remove the distortion are explored. Setting urban wages appropriately is also shown to attain the optimum. Finally, we explore the criterion to judge whether changing urban wages as a policy, such as the minimum wage law, enhances social welfare.     

Job polarization in the new economy in Danish cities: location,size, and the role of the public sector

ABSTRACT

In this paper we examine the geographic patterns of employment growth and employment polarization in small and medium-sized cities (SMCs) in Denmark during the rise of the new economy. The geography of employment polarization in Danish cities is examined using register-based employment data on occupations and wages divided into the public and private sectors in the period 1993–2006; it therefore covers a long period of transformation and growth in the Danish economy. We conclude that employment growth is characterized by employment polarization combined with growth in low- and high-wage employment and a decline in medium-wage employment. However, these patterns of polarization differ across the public and private sectors, as well as by geography. While local labour market (LLM) size, city position and city specialization influence the geography of private-sector employment growth and polarization, municipal population and composition influence the geography of public-sector growth patterns across wage levels. Finally, public and private employment are positively associated within SMCs, predominantly driven by the positive association between public employment and private-sector low-wage employment. However, public employment is not associated with an increase in private low-wage employment in more remote areas.     

What drives the spatial wage premium in formal and informal labor markets? The case of Ecuador

This article investigates the incidence of agglomeration externalities in Ecuador, a small-sized, middle-income developing country. In particular, we analyze the role of the informal sector within these relations, since informal employment accounts for a significant part of total employment in the developing countries. Using individual level data and instrumental variable techniques, we investigate the impact of spatial externalities, in terms of population density, local specialization and urban size, on the wages of workers in Ecuadorian cities. The results show that spatial externalities matter also for a small developing country. Moreover, analysis of the interaction between spatial externalities and informality shows that, on average, workers employed in the informal sector do not enjoy significant benefits from agglomeration externalities. Finally, by investigating the possible channels behind spatial agglomeration gains we show that the advantages from agglomeration for formal sector workers may well be accounted for by better job-quality matches and, to a lesser extent, by learning externalities. For informal sector workers, our findings also suggest possible gains from job changes, which offset a penalty for remaining employed in the same occupation.     

Recent Theoretical Paradigms in Urban Growth

The aim of this article is to present a critical view of the theoretical toolboxes developed in urban economics to explain urban city size. The article starts with the consideration that, during the 1960s and 1970s, the question of optimal city-size tended to be expressed in a misleading way. The real issue is not an “optimal city size” but an “efficient size”, which depends on the functional characteristics of the city and on the spatial organization within the urban system. Economies of scale exist up to a certain city size. However, urban development generates conditions leading to structural readjustments which lead to new economic advantages. These structural adjustments may be either sectoral transformations towards higher-order functions, or the emergence of external linkages with other cities. The article provides recent empirical evidence of the role played by urban functions and city networking in explaining urban equilibrium size. The empirical analyses reported here witness the importance of the structural adjustment of cities needed to achieve a higher equilibrium size.     

Do Urban Agglomeration Effects and Household Amenities have a Skill Bias?*

There are several hypotheses why urban scale affects wages. Most focus on agglomeration economies that increase labor demand, especially for high‐skilled workers (e.g., dynamic externalities stress knowledge transfers, and imply the urban wage gap favors skilled workers). Others stress urban amenities that increase labor supply and decrease wages. Amenities should have a stronger influence on affluent households if they are normal goods. By examining whether urban‐scale affects net returns to education, it can be determined whether skilled workers are influenced more by urban productivity or amenities. Empirical results suggest net returns to education decline with urban scale, implying a key role for urban amenities in affecting skilled workers.