Spatial Economics

Paper Session

Friday, Jan. 6, 2017 10:15 AM – 12:15 PM

Hyatt Regency Chicago, Michigan 3
Hosted By: American Economic Association
  • Chair: Stephen Redding, Princeton University

Matching and City Size

Enrico Moretti
,
University of California-Berkeley

Abstract

In most developed countries, average wages differ significantly across cities and these differences persist even after worker and firm characteristics are accounted for. Using a longitudinal worker-firm dataset for all German workers between 1990 and 2010, we study the role played by assortative matching in explaining geographical wage differences. We estimate standard AKM models where log wages are a function of worker- and establishment-fixed effects. We then decompose wage differences across cities into spatial differences in (i) worker quality; (ii) establishment quality; and (iii) their correlation, which captures the degree of assortative matching within a city. Perhaps not surprisingly, we find that “good workers” and “good firms” are concentrated in high wage cities. More importantly, we find that the degree of positive assortative matching between workers and firms is significantly higher in high wage cities and has been increasing over time. 43% of the difference between high wage and low wage cities in 2010 is explained by assortative matching. In the absence of assortative matching, aggregate income in Germany would be at least 2% lower, holding constant worker and establishment quality.

Cities, Skills, and Sectors in Developing Economies

Jonathan Dingel
,
University of Chicago
Don Davis
,
Columbia University
Antonio Miscio
,
Columbia University

Abstract

In developed economies, larger cities are skill-abundant and specialize in skill-intensive activities. This paper characterizes the spatial distributions of skill and sectors in Brazil, China, and India. To facilitate comparisons with developed-economy findings, we construct metropolitan areas from finer geographic units for each economy. We then compare and contrast the spatial distributions of educational attainment, industrial employment, and occupational employment across Brazil, China, India, and the United States.

Reinventing Detroit

Esteban Rossi-Hansberg
,
Princeton University
Raymond Owens
,
Federal Reserve Bank of Richmond
Pierre Sarte
,
Federal Reserve Bank of Richmond

Abstract

During the last five decades the city of Detroit, Michigan has experienced large declines in population that have shrunk the city to about one third of its largest size. These declines have created a variety of problems related to both the city’s finances and its urban structure. The current structure of the city is clearly ill-suited for its current population size, with a large number of vacant houses and lots close to large employment areas in downtown Detroit. We propose a structural model of the city with residential and business location choices, as well as the presence of residential developers. Coordination problems lead to multiple equilibria in the development of residential neighborhoods that can explain the lack of new residential development in areas close to thriving commercial centers. We use detailed data for Detroit to structurally estimate the model and propose several policies to solve the measured coordination problems and make the city structure more suitable for its current size. The framework and lessons we derive from Detroit can be readily applied to a number of other declining cities.

Estimating Neighborhood Effects: Evidence From War-Time Destruction in London

Stephen Redding
,
Princeton University
Daniel Sturm
,
London School of Economics and Political Science

Abstract

We use Second World War destruction in London as a natural experiment to provide evidence on neighborhood effects. We use a newly-collected and remarkable dataset on thousands of locations within London that records wartime destruction and the economic and social characteristics of locations from the late-nineteenth to late-twentieth centuries. We combine these data with a quantitative model of the sorting of heterogeneous groups of agents across locations that differ in productivity, amenities and trans- port infrastructure. We find that both own and neighbors’ destruction affect patterns of spatial sorting and that the effects of neighbors’ destruction are highly localized (0-200 meters). These findings provide evidence for spatial sorting as a mechanism through which neighborhood effects occur.
JEL Classifications
  • J1 - Demographic Economics
  • R1 - General Regional Economics