Introduction

As in Chapter 3, we will now relax the assumption of a unique job center (monocentric city) and investigate the consequences of multicentric cities on workers' labor market outcomes when firms set efficiency wages.

In Section 2, we extend the Harris-Todaro model with efficiency wages to incorporate a land market. Hence, we analyze the rural-urban migration equilibrium and study its consequences on the labor market. In particular, we find that when the government decreases the unemployment benefit, there is an increase in urban and rural employment while there is a decrease in urban unemployment. We obtain this result because compared to the standard non-spatial model, there is an additional repulsion force due to land-rent escalation following a decrease in the unemployment benefit. Indeed, we find that a reduction in the unemployment benefit reduces the land rent in the unemployment zone, but has an ambiguous effect for employed workers.

Then, we study migration between cities of different sizes in Section 3. We show that there exists a fundamental trade-off between high wages and high land rents in large cities and low wages and low spatial costs in small cities.

In Section 4, we then study migration of workers within a city when workers decide to work somewhere in the area between the Central Business District (CBD) and the Suburban Business District (SBD). We analyze the case when the SBD is exogenous and when it is endogenously formed. We also consider the case of high relocation costs. Efficiency wages and unemployment rates will differ since jobs in the CBD and the SBD are of different natures.