Title: Market Size, Productivity and Employment with Labor Market Frictions
Reference Number: 1011
Publication Date: May 2000
JEL Classifcation: E24, J64, R39

Chung Yi Tse
The University of Hong Kong

That workers in cities are more productive is arguably the most celebrated fact in urban economics. The available evidence, however, suggests that agglomeration economies do not appear to extend to helping raise employment in cities above less dense locales. But in the absence of other effects, standard economic reasoning suggests that more productive workers should also experience higher employment. This paper explains that the outward shift in the production function by improving investment incentives would also induce firms to create more specialized jobs. In equilibrium, the productivity gains may not be dissipated in more job creation, but in the creation of more specialized jobs that may only be sustained in a labor market with a longer job queue.

Key words: job matching, agglomeration economies, unemployment

Last modified: 07/25/2002