Frictional Spatial Equilibrium

34 Pages Posted: 3 Nov 2016  

Benoît Schmutz

Howard University

Modibo Sidibe

Duke University

Date Written: September 27, 2016

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 co-movement 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: Search Frictions, Spatial Equilibrium, Amenities

Suggested Citation

Schmutz, Benoît and Sidibe, Modibo, Frictional Spatial Equilibrium (September 27, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 236. Available at SSRN: https://ssrn.com/abstract=2863325

Benoît Schmutz

Howard University ( email )

2400 Sixth Street, NW
Washington, DC 20059
United States

Modibo Sidibe (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Paper statistics

Downloads
26
Abstract Views
76