PREFERENCE HETEROGENEITY AND ECONOMIC GEOGRAPHY*

ABSTRACT We investigate the effect of preference heterogeneity between skilled and unskilled workers on agglomeration, and we identify a new source of dependence of equilibrium prices on the demand properties shaped by the inter‐regional distribution of workers. We find a new preference effect, and we show that when the intensity of skilled workers' preference for the modern good and its variety is strong enough, prices charged by firms may even increase when the mass of local firms increases, therefore acting as a new dispersion force when trade costs are low or as a new agglomeration force when trade costs are high.     

Elastic labor supply and agglomeration

This study analyzes the interplay between the agglomeration of economic activities and interregional differences in working hours, which are typically longer in large cities, as they are normally more developed than small cities. For this purpose, we develop a two‐region model with endogenous labor supply. Although we assume a symmetric distribution of immobile workers, the symmetric equilibrium breaks in the sense that firms may agglomerate when trade costs are intermediate and labor supply is elastic. We also show that the price index is always lower, while labor supply, per capita income, real wages, and welfare are always higher in the more agglomerated region.     

ON THE IMPACT OF COMPETITION ON TRADE AND FIRM LOCATION

We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two‐way trade, through one‐way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one‐way trade, the relocation of firms changes their attitude toward export.     

WHAT DRIVES THE URBAN WAGE PREMIUM? EVIDENCE ALONG THE WAGE DISTRIBUTION

This paper aims at disentangling the role played by different explanations on the urban wage premium along the wage distribution. We analyze the wage dynamics of migrants from lower to higher density areas in Italy, using quantile regressions and individual data. The results show that unskilled workers benefit more from a wage premium accruing over time, while skilled workers enjoy a wage premium when they migrate as well as a wage increase over time. Further, we find that for unskilled workers the wage growth over time is mainly due to human capital accumulation in line with the “learning” hypothesis, while for skilled workers the wage growth is mainly explained by the “coordination” hypothesis, i.e., cities enhance the probability of better matches between workers and firms.     

SKILL POLARIZATION IN LOCAL LABOR MARKETS UNDER SHARE‐ALTERING TECHNICAL CHANGE

This paper considers the “share‐altering” technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb‐Douglas production function, our model shows that the implementation of skill‐biased technologies requires a sufficient proportion of highly educated individuals. Moreover, when technical progress disproportionately replaces middle‐skill jobs, the local distribution of skills will exhibit “fat‐tails,” where the proportion of both highly skilled and low‐skilled workers increases. These and several other predictions of the model are consistent with recent existing evidence, and avoid some major criticism against the “canonical” CES framework.     

THE DETERMINANTS OF LOCALIZATION AND URBANIZATION ECONOMIES: EVIDENCE FROM THE LOCATION OF NEW FIRMS IN SPAIN

The objective of this paper is to analyze why firms in some industries locate in specialized economic environments (localization economies) while those in other industries prefer large city locations (urbanization economies). To this end, we examine the location decisions of new manufacturing firms in Spain at the city level and for narrowly defined industries. First, we estimate firm location models to obtain estimates that reflect the importance of localization and urbanization economies in each industry. Then, we regress these estimates on industry characteristics related to the potential importance of labor market pooling, input sharing, and knowledge spillovers. Urbanization effects are high in knowledge‐intensive industries, suggesting that firms locate in large cities to benefit from knowledge spillovers. We also find that localization effects are high in industries that employ workers whose skills are more industry‐specific, suggesting that industries locate in specialized economic environments to share a common pool of specialized workers.     

THE IMPACT OF SKILL‐SPECIFIC MIGRATION ON REGIONAL UNEMPLOYMENT DISPARITIES IN GERMANY

Differences in regional unemployment are still pronounced in Germany, especially between eastern and western Germany. Although the skill level seems important for the relationship between regional disparities and labor migration, corresponding empirical evidence is scarce. Applying dynamic panel models, we investigate the impact of labor mobility differentiated by educational attainment of the workers on regional unemployment disparities between 2000 and 2008. The impact of low‐ and medium‐skilled migration is consistent with traditional neoclassical reasoning, suggesting that labor mobility reduces differences in regional unemployment rates. In contrast, the migration of high‐skilled workers tends to reinforce disparities.     

Polarization and the growth of low‐skill service jobs in Spanish local labor markets

This paper analyzes the long‐term transformations of the occupational structure in 50 provinces of Spain with a view to ascertain the existence and assess the extent of employment polarization. The peculiar characteristics of this country, namely rigid labor markets and the relatively recent transition to democracy, make for an interesting addition to existing studies on this topic. In line with previous literature on other countries, we find a strong association between the decline of “routine” mid‐skill jobs and the expansion of low‐skill service employment as well as differential labor market outcomes by levels of formal education. Results are robust to various controls and instrumental variables that account for long‐term industry specialization. We also find a positive local multiplier effect of high‐skilled workers on the demand for nontradable service jobs.     

Spatial and social mobility

This paper analyzes the relationship between spatial mobility and social mobility. It develops a two‐skill‐type spatial equilibrium model of two regions with location preferences where each region consists of an urban area that is home to workplaces and residences and an exclusively residential suburban area. The paper demonstrates that relative regional social mobility is negatively correlated with segregation and inequality. In the model, segregation, income inequality, and social mobility are driven by differences between urban and residential areas in commuting cost differences between high‐skilled and low‐skilled workers, and also by the magnitude of taste heterogeneity.     

DOES AGGLOMERATION MATTER EVERYWHERE?: NEW FIRM LOCATION DECISIONS IN RURAL AND URBAN MARKETS*

We test whether commonly used measures of agglomeration economies encourage new firm entry in both urban and rural markets. Using new firm location decisions in Iowa and North Carolina, we find that measured agglomeration economies increase the probability of new firm entry in both urban and rural areas. Firms are more likely to locate in markets with an existing cluster of firms in the same industry, with greater concentrations of upstream suppliers or downstream customers, and with a larger proportion of college‐educated workers in the local labor supply. Firms are less likely to enter markets with no incumbent firms in the sector or where production is concentrated in relatively few sectors. The same factors encourage both stand‐alone start‐ups and establishments built by multiplant firms. Commuting decisions exhibit the same pattern as new firm entry with workers commuting from low to high agglomeration markets. Because agglomeration economies are important for rural firm entry also, policies encouraging new firm entry should focus on relatively few job centers rather than encouraging new firm entry in every small town.     

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.     

Labour Relations and the Transfer of Knowledge in Industrial Clusters: Why do Skilled Workers Share Knowledge with Colleagues in Other Firms?

Industrial clusters are held to offer competitive advantages to firms that accrue from the transfer of tacit knowledge between skilled workers co-located in spatially bound regions. This paper argues that informal knowledge transfers between skilled employees working in spatially bounded industrial clusters might have an association with the labour relationship between employers and employees. In the literature on industrial clusters general knowledge is readily traded through codified texts and collegial networks but high value, tacit knowledge transfers occur less frequently but are critical to the success of firms located in clusters. Tacit knowledge transfers are held to occur when workers move to other firms because of firm death or poaching but less frequently through contacts between colleagues from other firms. Industrial clusters are said to offer labour market advantages for skilled workers in the form of ample job opportunities and rising wages, which engender firm loyalty and discourage the transfer of tacit knowledge of competitive value to other firms. However, the limited empirical evidence available on actual working conditions for skilled workers in regional industrial clusters indicates that this argument is contestable. Some evidence suggests that there are limited wage premiums accruing to the industrial districts, a limited role for geographic proximity, and weak localised returns on seniority and education. We argue that in such circumstances high value knowledge between workers in different firms might be traded as an act of epistemic solidarity or sociability that disregards the interests of employer organisations. Such actions might vary by region and country in relation to the prevailing system of labour relations. Australian labour relations are offered as a case in point.     

The Impact of a Customs Union with the European Union on Internal Migration in Turkey

Abstract The impact of the recent Customs Union (CU) agreement between Turkey and the European Union on internal migration is studied using an intra‐industry trade Computable General Equilibrium (CGE) model with intersectoral capital mobility under two alternative specifications for the labor market: the traditional Harris‐Todaro approach and the existence of a “wage curve” in the urban sector. Under both specifications, the numerical results show that the CU is welfare enhancing and causes a reduction of the urban‐rural wage gap as suggested by theoretical studies. At the same time, it leads to rural‐to‐urban migration and raises the capital rent, results that are counter intuitive with respect to the dual economy literature. Furthermore, the rise in formal labor demand and the migration response to the CU have not resulted in an increase in urban unemployment (i.e. the “Todaro paradox”), but rather to a fall in the unemployment pool. The study also shows that the Bhagwati‐Srinivasan proposal of maximizing welfare by uniformly subsidizing the entire labor market is impracticable, especially if the high wage union sector can negotiate employment conditions.     

THE EFFECTS OF TRADE WITH DEVELOPING COUNTRIES ON THE REGIONAL DEMAND FOR SKILL IN THE U.S.: EVIDENCE FROM COUNTY DATA*

ABSTRACT Using county‐level data from the 1980s and 1990s and a county‐level trade measure that incorporates the county's industrial mix and patterns of international trade across industries, I provide new evidence that trade with developing countries raises the demand for skill and the skill premium in the U.S. Consistent with Heckscher–Ohlin, I find that trade driven by differences in factor endowments has an economically significant impact on local labor markets. The evidence suggests that when trade with developing countries rises, counties with higher skill endowment and greater employment in industries with larger trade shares experience greater relative demand for high‐skilled labor.     

Firm-level productivity growth returns of social capital: Evidence from Western Europe

We analyze the firm-level labor productivity growth returns of social capital—defined as a synthetic measure of “generalized trust,” “active participation,” and “social norms”—using a large sample of manufacturing firms in France, Germany, Italy, Portugal, and Spain. We find that firms' labor productivity growth is higher in areas with a better social capital endowment. The positive returns of social capital are, nevertheless, unevenly distributed across firms, with smaller, less productive, less capital-endowed, and low-tech firms benefitting the most from operating in strong social capital ecosystems.     

Culturally clustered or in the cloud? How amenities drive firm location decision in Berlin

Creative firms are neither capital‐ nor land‐intensive in production. They predominantly rely on creative and specialized labor and, assuming a strong competition for workers, are therefore increasingly dependent on the location of their (potential) employees. If these creative and highly qualified employees are attracted by consumption amenities such as bars, clubs, and restaurants, then it follows that these same amenities may determine the location of creative service firms. I investigate this hypothesis by examining whether Berlin Internet start‐up firms locate in urban amenity‐rich places. Identification builds on the fall of the Berlin Wall. A 1 percent increase in amenity density raises the probability of a start‐up location by almost 2 percent. A comparison with other service industries suggests that amenities are significant to the location choice of creative sectors, whereas no effect can be observed for nonreative firms.     

High‐speed railway to success? The effects of high‐speed rail connection on regional economic development in China

We find that high‐speed railway connection in China has led to a reduction in GDP per capita for connected peripheral prefectures. We use the least‐cost path‐spanning tree network to address the nonrandom route placement issue. We find that the reduction of GDP per capita is driven by significant contractions in capital input, industrial output, and skilled labor outflow. We present evidence to support a trade‐based channel in light of falling transportation costs between peripheral and metropolitan regions. Our finding highlights the importance of the cost of human transport.     

ON THE IMPACT OF LABOR MARKET MATCHING ON REGIONAL DISPARITIES*

ABSTRACT We propose a model where imperfect matching between firms and workers on local labor markets leads to incentives for spatial agglomeration. We show that the occurrence of spatial agglomeration depends on initial size differences in terms of both number of workers and firms. Allowing for dynamics of workers' and firms' location choices, we show that the spatial outcome depends crucially on different dimensions of agents' mobility. The effect of a higher level of human capital on regional disparities depends on whether it makes workers more mobile or more specialized on the labor market.     

TRANSPORTATION COSTS IN REGIONAI,MODELS OF FOREIGN TRADE: AN APPLICATION TO CANADA-U.S. TRADE*

ABSTRACT. This paper outlines some arguments about the role of transportation costs in determining the welfare consequences of trade restrictions. The analysis uses a computable general equilibrium (CGE) model and presents the relevant features for trade analysis. The model has two alternative spatial formulations. In the first, all production and trade occur at one point, while in the second the regions are separated by distance. The calculated effects of a unilateral tariff increase are compared using the CGE model with the “point” and “distance” formulation. While the presence of transportation costs is crucial to some sectoral trade and production results, most welfare results are relatively insensitive to the spatial structure of the model.     

REGIONAL POLICY ANALYSIS IN A SIMPLE GENERAL EQUILIBRIUM MODEL WITH VERTICAL LINKAGES*

ABSTRACT The paper presents a simple three‐region, two‐sector general equilibrium model that is used for analyzing the effect of regional tax policies aimed at combat depopulation. The model includes exogenous asymmetry in terms of transport costs as well as a vertical industry structure that can account for endogenous location development in order to distinguish between the effects of “first nature” and “second nature” on the required subsidy for meeting the population policy target.