Who Gets the Urban Surplus?
19 Pages Posted: 2 May 2017
Date Written: April 2017
High productivity in cities creates an economic surplus relative to other areas. How is this divided between workers and land-owners? Simple models with homogenous labour suggest that it accrues largely - or entirely - in the form of land-rents. This paper shows that heterogeneity of labour in two main dimensions (productivity differentials and housing demands) radically changes this result. Even a modest amount of heterogeneity can drive the land share of surplus down to 2/3rds or lower, as high productivity and/or low housing demand individuals receive large utility gains. In a system of cities the sorting of workers across cities mean that the land-rent share of surplus is lowest in the largest and most productive cities.
Keywords: cities, Land rent, productivity, sorting, wages
JEL Classification: R1, R10, R2
Suggested Citation: Suggested Citation