How Urbanization Affect Employment and Social Interactions

45 Pages Posted: 2 Jun 2014

See all articles by Yasuhiro Sato

Yasuhiro Sato

Nagoya University; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Yves Zenou

Stockholm University; Monash University - Department of Economics; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: February 2014

Abstract

We develop a model where the unemployed workers in the city can find a job either directly or through weak or strong ties. We show that, in denser areas, individuals choose to interact with more people and meet more random encounters (weak ties) than in sparsely populated areas. We also demonstrate that, for a low urbanization level, there is a unique steady-state equilibrium where workers do not interact with weak ties, while, for a high level of urbanization, there is a unique steady-state equilibrium with full social interactions. We show that these equilibria are usually not socially efficient when the urban population has an intermediate size because there are too few social interactions compared to the social optimum. Finally, even when social interactions are optimal, we show that there is over-urbanization in equilibrium.

Keywords: labor market., social interactions, strong ties, urban economics, Weak ties

JEL Classification: J61, R14, R23

Suggested Citation

Sato, Yasuhiro and Sato, Yasuhiro and Zenou, Yves and Zenou, Yves, How Urbanization Affect Employment and Social Interactions (February 2014). CEPR Discussion Paper No. DP9805, Available at SSRN: https://ssrn.com/abstract=2444804

Yasuhiro Sato (Contact Author)

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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