Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Urban Productivity Advantages from Job Search and Matching

Urban Productivity Advantages from Job Search and Matching

Ratings: (0)|Views: 36 |Likes:
Densely populated areas tend to be more productive. Of course, the cost of living and producing in these locations is higher because congestion raises the cost of scarce fixed resources such as land. But despite the higher prices, many people and businesses continue to live and work in these areas. Why? One explanation is that these locations have natural advantages, such as proximity to a river. Another says that this concentration of households and businesses by itself generates productivity advantages in the form of agglomeration economies. In studying these agglomeration economies, economists have pursued two other questions. Do agglomeration economies exist and how big are they? And what are the precise sources of these agglomeration economies? In “Urban Productivity Advantages from Job Search and Matching,” Jeffrey Lin describes the evidence for agglomeration economies from job search and matching and then asks whether it may be large enough to offer meaningful explanations for differences in productivity and density.
Densely populated areas tend to be more productive. Of course, the cost of living and producing in these locations is higher because congestion raises the cost of scarce fixed resources such as land. But despite the higher prices, many people and businesses continue to live and work in these areas. Why? One explanation is that these locations have natural advantages, such as proximity to a river. Another says that this concentration of households and businesses by itself generates productivity advantages in the form of agglomeration economies. In studying these agglomeration economies, economists have pursued two other questions. Do agglomeration economies exist and how big are they? And what are the precise sources of these agglomeration economies? In “Urban Productivity Advantages from Job Search and Matching,” Jeffrey Lin describes the evidence for agglomeration economies from job search and matching and then asks whether it may be large enough to offer meaningful explanations for differences in productivity and density.

More info:

Published by: Federal Reserve Bank of Philadelphia on Mar 10, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

03/10/2011

pdf

text

original

 
Business Review 
Q1 2011 9
www.philadelphiafed.org
Why do people in denselypopulated areas tend to be moreproductive? In countries like the U.S.,places dense in workers, machines,
D
BY JEFFREY LIN
Urban Productivity Advantages from JobSearch and Matching*
*The views expressed here are those of theauthor and do not necessarily representthe views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
ensely populated areas tend to be moreproductive. Of course, the cost of living andproducing in these locations is higher becausecongestion raises the cost of scarce fixedresources such as land. But despite the higher prices,many people and businesses continue to live and work inthese areas. Why? One explanation is that these locationshave natural advantages, such as proximity to a river.Another says that this concentration of households andbusinesses by itself generates productivity advantages inthe form of agglomeration economies. In studying theseagglomeration economies, economists have pursued twoother questions. Do agglomeration economies exist andhow big are they? And what are the precise sources of these agglomeration economies? In this article, JeffreyLin describes the evidence for agglomeration economiesfrom job search and matching and then asks whether itmay be large enough to offer meaningful explanations fordifferences in productivity and density.
Jeffrey Lin
is asenior economistin the ResearchDepartment of the PhiladelphiaFed. This articleis available freeof charge at www.philadelphiafed.org/research-and-data/publications/.
firms, and households also tend tobe places where people are able toproduce more things. Of course, theseplaces are also usually more expensiveto produce in and to live in becausecongestion raises the price of scarcefixed resources such as land. Despitethese high prices, many businessesand people continue to choose theselocations.A typical first explanation is thatthese densely populated areas enjoyintrinsic natural advantages, such asPhiladelphia’s proximity to a navigablewaterway and a relatively deep harbor.Advantages like these can reduce thecosts of shipping and the price of trad-ed goods, attracting both businessesand households. This story can oftenbe compelling, even though, today,many people in the Philadelphia regiondo not experience direct benefits fromthe Delaware River. An intriguingalternative explanation is that bring-ing together workers, businesses, andhouseholds can, by itself, generatethese productivity advantages. Thesekinds of advantages are often calledagglomeration economies, and theydescribe situations in which geographicconcentrations of economic activity al-low businesses and households to saveon the costs of transporting people,materials, and ideas.Urban economists have pursuedtwo related research questions. First,do these agglomeration economiesexist, and, if so, how big are they?Second, what are the precise sources of these agglomeration economies?Many researchers have alreadydiscovered evidence that these agglom-eration economies do exist and thatthey are big enough to offer mean-ingful explanations of present-daydifferences in productivity and density.For example, in an attempt to answerthe first question, economists AntonioCiccone and Robert Hall, using datafor U.S. states, found that a doubling of employment density increased averagelabor productivity by about 6 percent.Although other studies have provideddifferent estimates of the exact mag-
 
10 Q1 2011
Business Review 
www.philadelphiafed.org
nitude of this effect, many have notedthat agglomeration economies make animportant contribution to differencesin productivity across locations.
1
In ad-dition, research by Satyajit Chatterjee(discussed in his 2003
Business Review
 article) also suggests that agglomera-tion economies play some explanatoryrole in these differences, even afteraccounting for natural advantages.For both academic and policyreasons, an important next step isto investigate the specific
sources
of agglomeration economies. In thisarticle, I will discuss some of my recentresearch on one potential source:opportunities to better match work-ers’ skills to job requirements. Denseurban areas have thick labor markets–– that is, markets with many differ-ent kinds of workers and jobs –– andmight therefore benefit from improvedjob search and matching. This idea that markets with more participantscan offer better matches  is typicallyattributed to Alfred Marshall, and theidea was formalized in economist PeterDiamond’s “coconut” model. (If con-sumers have tastes for a particular va-riety of “coconut,” they are more likelyto find the one they prefer in a largemarket where more types of coconutsare sold.) Intuitively, we know thatworkers have varying skills and jobshave varying skill requirements. Fromthe perspective of a worker, search-ing for a suitable job may be easierin a large city with many potentialemployers. Put another way, workersin large cities may find a job that isbetter matched to their talents, for thesame search costs. This is a potentialsource of agglomeration economies;geographic concentration increasesproductivity because workers need notlet their acquired skills lapse by takingless-suitable jobs.It is important to note that, intheory, there are a number of differentsources of agglomeration economies.In a 2005
Business Review
article, JerryCarlino discusses a few of the manypossible economic mechanisms respon-sible for agglomeration economies. His2001
Business Review
article talks aboutone possible mechanism  knowledgespillovers  related to the increasedproduction and flow of (new) ideasand information in dense cities. In alater
Business Review
article (2009), hedescribes his paper in which he evalu-ates another potential mechanism:Urban population density may increasethe amount and variety of goods andservices available for households toconsume. As another example, I showevidence for yet another mechanismin a recent working paper: Geographicconcentrations of skilled workers andpotential users of new products or pro-cesses can increase the rate of adapta-tion to new technologies. In general,as explained by Gilles Duranton andDiego Puga, agglomeration economiesmight arise from mechanisms relatedto sharing, learning, or matching.Sharing refers to advantages that arisefrom distributing the costs of large in-divisible investments across many pro-ducers or consumers, as might be thecase with a large factory or consump-tion amenities, as in Carlino’s article.Learning refers to advantages in eitherthe creation of new technologies, asdescribed by Jane Jacobs; the forma-tion of human capital, as described byEdward Glaeser and David Maré; oradaptation to new technologies, as inmy working paper.In order to evaluate alternativeproposals, policymakers concernedwith city growth, the productivity of local workers, or the welfare of localresidents need to understand thespecific economic forces that generateproductivity advantages and attractbusinesses and households to certainplaces. Should local leaders sponsorarts and cultural programs or invest intransportation infrastructure? Whatkinds of businesses should cities beinterested in attracting? The answer tothese questions depends on the relativestrength of different kinds of agglom-eration economies. In other words, forboth intellectual and practical reasons,it is useful to know what is happeninginside the “black box” of agglomera-tion economies.However, finding evidence thatdistinguishes one kind of agglomera-tion economy from another can bechallenging. Different mechanismsoften have similar predictions for ag-gregate city-level data. For example,most (if not all) kinds of agglomera-tion economies predict higher wagesand higher land prices in denser cities.
1
See the paper by Gerald Carlino and RichardVoith; the recent working paper by MorrisDavis, Jonas Fisher, and Toni Whited; and the2004 article by Stuart Rosenthal and WilliamStrange.
In order to evaluate alternative proposals,policymakers concerned with city growth, theproductivity of local workers, or the welfare of ORFDOUHVLGHQWVQHHGWRXQGHUVWDQGWKHVSHFL¿Feconomic forces that generate productivityadvantages and attract businesses andhouseholds to certain places.
 
Business Review 
 
1 2011 11
www.philadelphiafed.org
(These facts are in line with conven-tional wisdom and easily confirmedusing aggregate census data.) There-fore, looking inside the “black box”of agglomeration economies oftenrequires creative research strategies.Recent work in this area, including myown, has been made possible by theincreasing availability of large data setsthat contain detailed information atthe plant, household, or worker level.Using micro-data, it is sometimes pos-sible to test predictions that are uniqueto one kind of agglomeration economyand not associated with another kind.In this way, it becomes possible tohighlight variables that should be of interest to policymakers.I will describe the evidence foragglomeration economies from jobsearch and matching using just sucha strategy. An important caveat isthat the research strategy describedhere does not rule out other sources of agglomeration economies. Instead, Ievaluate whether there is evidence forthis source of agglomeration economiesand then ask whether it may be largeenough to offer meaningful explana-tions for differences in productivityand density.
JOB SEARCH AND MATCHINGIN CITIES
In my recent working paper withHoyt Bleakley, we test for agglomera-tion economies from job search andmatching. The intuition for our testis as follows. Consider a worker in asmall city who loses her job. She hassome specialized skills (either innateor gained through experience) suitedto the activities she performed or theoutput she produced in her previousjob. If the separation from her previousjob is permanent, the worker now facesa choice: She could wait a long timebefore finding employment performingsimilar tasks but at a different firm. Or,because waiting is costly, it may makemore sense to accept a job elsewherein the local economy that is less suitedto her unique skill set. (Alternatively,she might choose to move to a locationwhere there is greater demand for herskills, but of course, moving is alsocostly.) Since her skills are less suitedto this job, some of her skills go un-used, and she may be less productive.This worker, in a small city,faces a “small numbers” problem: Shehappens to be without a job, but doesthere happen to be another firm thatneeds a worker with her skill set? Onthe other hand, workers in dense citiesbenefit from market thickness: Theyare less likely to be in a narrow labormarket at a moment in which theirskills are in excess supply. This poten-tial source of agglomeration economiesyields an interesting, and potentiallyunique, prediction: Workers shouldchoose to eschew their specializedskills
less frequently
in large, dense cit-ies, where they are more likely to findjob openings suited to their talents.We evaluate this prediction byexamining the likelihood that workerschange
occupations
or
industries
. Thesejob classifications, characterizing eitherthe tasks or activities performed orthe kinds of output produced, havebeen used in a number of labor-marketstudies on specific human capital.
2
Weexpect that in the presence of agglom-eration economies from job search andmatching, workers should choose tochange occupations and industries lessfrequently in denser labor markets.Further, this agglomeration econ-omy should also affect workers’ earlydecisions about skill specialization.In separate studies, economists KevinMurphy and Sunwoong Kim haveproposed how density might changethe market for specialized skills.In Kim’s model, sparsely populatedareas have fewer firms in each sector,and therefore, a worker might haveinvested less in narrow skills becauseshe anticipated that there would befewer potential employers in the eventof a separation.
3
Therefore, in largecities, workers choose to invest more inspecialized skills, making it even lesslikely that they would want to changeoccupations or industries in densecities and compounding density’s effecton productivity.
4
Using data from the decennialU.S. census and the monthly CurrentPopulation Survey (CPS), Bleakleyand I confirm this prediction. We findthat workers are less likely to changeoccupation or industry in metropolitanareas with high population density(Figure 1). The data are at the workerlevel, and the key outcome of interestis a change in each worker’s reportedoccupation or industry.
5
Respondentsto the 1970 census reported thesechanges for 1965 and 1970. TheCPS samples in the 1990s and 2000sreported these changes for individualworkers, both for the year of the surveyand up to three years earlier. The keyexplanatory variable is local populationdensity, measured for each worker’smetropolitan area of residence. Figure1 summarizes our main result. Here,each point represents a metropolitan
2
For example, see the study by Derek Neal andthe one by Daniel Parent on industry-specificskills; see Gueorgui Kambourov and IouriiManovskii’s recent paper on occupation-specificskills.
3
Alternatively, workers in small cities withspecialized skills might choose to move todenser cities.
4
For example, James Baumgardner foundthat doctors are more specialized in big cities;similarly, Luis Garicano and Thomas Hubbardfound more specialization among lawyers inlarger markets.
5
We obtain similar results whether our outcomeof interest measures a change in each worker’sreported occupation, a change in reportedindustry, or a change in either reported occupa-tion or reported industry.

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->