The Todaro Paradox Revisited

The Todaro Paradox states that policies aimed at reducing urban unemployment are bound to backfire: they will raise rather than reduce urban unemployment. The aim of this paper is to reexamine this paradox in the context of efficiency wage and search-matching models. For that, we study a policy that consists in decreasing the urban unemployment benefit. In an efficiency wage model, we find that there is no Todaro paradox while this is not always true in a search-matching model since a decrease in the urban unemployment benefit can increase both urban employment and unemployment.Efficiency Wages; Search-Matching; Rural-Urban Migration; Policy

Housing Policies in China: Issues and Options

This article consists in three parts. The first part deals with theory. We evaluate the pros and cons of government involvement in urban housing and of renting versus ownership. In the second part, we summarize the different housing policies that have been implemented in the United States, Europe, and Asia. We draw some conclusions. In particular, we show that there is a tradeoff between encouraging home ownership and social housing since countries that have favor the former have neglected the latter (like Japan, Spain, etc.). In the third part, we use the theory and the international policy parts to address housing policy issues in China. One of the main concerns in Chinese cities is the raise of poverty mainly by "illegal" migrants (who are Chinese rural residents) living in "urban villages". We propose two steps to fight against poverty in Chinese cities. The first one is to require that the Chinese government recognizes these "illegal" migrants by helping them becoming "legal". The second step is to encourage social housing that directly or indirectly subsidizes housing for the poor. In that case, to fight against poverty, one can either implement place-targeted policies (like the enterprise zone programs in the US and Europe and/or housing projects in the US, UK, or France) or people-targeted policies (like the MTO programs in the US). We also discuss other issues related to poverty. In particular, we suggest that the government could also try to keep migrants in rural areas by attracting firms there and/or introduce a microfinance system that helps them become entrepreneurs.urban villages, social housing, poverty, place-targeted policies, people-targeted policies, China

Search, Migration, and Urban Land Use: The Case of Transportation Policies

We develop a search-matching model with rural-urban migration and an explicit land market. Wages, job creation, urban housing prices are endogenous and we characterize the steady-state equilibrium. We then consider three different policies: a transportation policy that improves the public transport system in the city, an entry-cost policy that encourages investment in the city and a restricting-migration policy that imposes some costs on migrants. We show that all these policies can increase urban employment but the transportation policy has much more drastic effects. This is because a decrease in commuting costs has both a direct positive effect on land rents, which discourages migrants to move to the city, and a direct negative effect on urban wages, which reduces job creation and thus migration. When these two effects are combined with search frictions, the interactions between the land and the labor markets have amplifying positive effects on urban employment. Thus, improving the transport infrastructure in cities can increase urban employment despite the induced migration from rural areas.Rural-urban migration; transportation policies; entry costs; restricting migration

Crime, Location and the Housing Market

We highlight the role of commuting cost, location and housing market in crime decision. By assuming that all crimes are committed in the central business district and that criminals create both positive and negative externalities to each other, we find that high wages or large levels of police resources are a natural way to reduce crime. We also find that bigger cities experience higher levels of crime because of the fiercer competition in the housing market. Finally, we show that reducing commuting costs can also reduce crime because the resulting decrease in housing prices is lower for workers than for criminals.Localized Crime; Housing Market; Commuting Cost

Housing Policies in China: Issues and Options

This article consists in three parts. The first part deals with theory. We evaluate the pros and cons of government involvement in urban housing and of renting versus ownership. In the second part, we summarize the different housing policies that have been implemented in the United States, Europe, and Asia. We draw some conclusions. In particular, we show that there is a tradeoff between encouraging home ownership and social housing since countries that have favor the former have neglected the latter (like Japan, Spain, etc.). In the third part, we use the theory and the international policy parts to address housing policy issues in China. One of the main concerns in Chinese cities is the raise of poverty mainly by “illegal” migrants (who are Chinese rural residents) living in “urban villages”. We propose two steps to fight against poverty in Chinese cities. The first one is to require that the Chinese government recognizes these “illegal” migrants by helping them becoming “legal”. The second step is to encourage social housing that directly or indirectly subsidizes housing for the poor. In that case, to fight against poverty, one can either implement place-targeted policies (like the enterprise zone programs in the US and Europe and/or housing projects in the US, UK, or France) or people-targeted policies (like the MTO programs in the US). We also discuss other issues related to poverty. In particular, we suggest that the government could also try to keep migrants in rural areas by attracting firms there and/or introduce a microfinance system that helps them become entrepreneur.Urban villages; Social housing; Poverty; Place-targeted policies; People-targeted policies; China

Social Interactions and Labor Market Outcomes in Cities

We develop a model where information about jobs is essentially obtained through friends and relatives, i.e. strong and weak ties. Workers commute to a business center to work and to interact with other people. We find that housing prices increase with the level of social interactions in the city because information about jobs is transmitted more rapidly and, as a result, individuals are more likely to be employed and to be able to pay higher land rents. We also show that, under some condition, workers using more their weak ties than strong ties to find a job receive a higher wage. We finally demonstrate that workers living far away from jobs pay lower housing prices but experience higher unemployment rates than those living close to jobs because they mainly rely on their strong ties to obtain information about jobs.social networks, labor market, weak ties, land rent

Social Interactions and Labor Market Outcomes in Cities

We develop a model where information about jobs is essentially obtained through friends and relatives, i.e. strong and weak ties. Workers commute to a business center to work and to interact with other people. We find that housing prices increase with the level of social interactions in the city because information about jobs is transmitted more rapidly and, as a result, individuals are more likely to be employed and to be able to pay higher land rents. We also show that, under some conditions, workers using more their weak ties than strong ties to find a job receive a higher wage. We finally demonstrate that workers living far away from jobs pay lower housing prices but experience higher unemployment rates than those living close to jobs because they mainly rely on their strong ties to obtain information about jobs.Weak Ties; Labor Market; Social Networks; Land Rent

Search, Migration, and Urban Land Use: The Case of Transportation Policies

We develop a search-matching model with rural-urban migration and an explicit land market. Wages, job creation, urban housing prices are endogenous and we characterize the steady-state equilibrium. We then consider three different policies: a transportation policy that improves the public transport system in the city, an entry-cost policy that encourages investment in the city and a restricting-migration policy that imposes some costs on migrants. We show that all these policies can increase urban employment but the transportation policy has much more drastic effects. This is because a decrease in commuting costs has both a direct positive effect on land rents, which discourages migrants to move to the city, and a direct negative effect on urban wages, which reduces job creation and thus migration. When these two effects are combined with search frictions, the interactions between the land and the labor markets have amplifying positive effects on urban employment. Thus, improving the transport infrastructure in cities can increase urban employment despite the induced migration from rural areas.Rural-urban migration, transportation policies, entry costs, restricting migration

Spatial versus Social Mismatch: The Strength of Weak Ties

The aim of this paper is to provide a new mechanism based on social interactions explaining why distance to jobs can have a negative impact on workers' labor-market outcomes, especially ethnic minorities. Building on Granovetter's idea that weak ties are superior to strong ties for providing support in getting a job, we develop a model in which workers who live far away from jobs tend to have less connections to weak ties. Because of the lack of good public transportation in the US, it is costly (both in terms of time and money) to commute to business centers to meet other types of people who can provide other sources of information about jobs. If distant minority workers mainly rely on their strong ties, who are more likely to be unemployed, there is then little chance of escaping unemployment. It is therefore the separation in both the social and physical space that prevents ethnic minorities from finding a job.weak ties, labor market, social networks, land rent

Search, Wage Posting, and Urban Spatial Structure

We develop an urban-search model in which firms post wages. When all workers are identical, the Diamond paradox holds, i.e. there is a unique wage in equilibrium even in the presence of search and spatial frictions. This wage is affected by spatial and labor costs. When workers differ according to the value imputed to leisure, we show that, under some conditions, two wages emerge in equilibrium. The commuting cost affects the land market but also the labor market through wages. Workers’ productivity also affects housing prices and this impact can be positive or negative depending on the location in the city. One important aspect of our model is that, even with positive search costs, wage dispersion prevails in equilibrium, a feature not possible in the non-spatial model.diamond paradox, urban land-use, spatial compensation, search frictions, wage dispersion