Workings of a City: Location, Education, and Production

41 Pages Posted: 27 Jun 2007

See all articles by Roland Bénabou

Roland Bénabou

Princeton University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: October 1991

Abstract

We examine the implications of local externalities in human capital investment for the size and composition of the productive labor force. The model links residential choice, skills acquisition, and production in a city composed of several communities. Peer effects induce self-segregation by occupation, whereas efficiency may require identical communities. Even when some asymmetry is optimal, equilibrium segregation can cause entire 'ghettos" to drop out of the labor force. Underemployment is more extensive. the easier it is for high-skill workers to isolate themselves from others. When perfect segregation is feasible, individual incentives to pursue it are self-defeating, and lead instead to a shutdown of the productive sector.

Suggested Citation

Bénabou, Roland, Workings of a City: Location, Education, and Production (October 1991). NBER Working Paper No. t0113. Available at SSRN: https://ssrn.com/abstract=995156

Roland Bénabou (Contact Author)

Princeton University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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