Urban/Labour

The paper analyzes the effects of differences in local economic conditions on the distribution of economic activity across cities. A new data base on a cross section of large American cities is used to examine the influence of local factors, fiscally related ones especially, on the factor intensity of manufacturing activity across cities. Property taxes are found to increase the labor intensity of a city’s manufacturing base but payroll and corporate income taxes are not found to have any significant effect on the factor intensity of manufacturing activity across cities. High-wage cities are found to have relatively capital-intensive manufacturing bases.

A general selection model is estimated in which workers select across four labor markets-private/nonunion, private/union, public/nonunion, and public/union. Evidence is found of positive selection bias in the private/nonunion sector and of negative selection bias in the public/union sector. Union wage differentials in the public and private sectors as well as public/private wage differentials are then calculated. Two different types of wage differentials are contrasted. We discuss when it is appropriate to use each type of differential.

The paper investigates whether local public unions successfully appropriate locational rents and whether local land markets capitalize the impacts of rent-seeking activity. Public sector unions do generate wage premia for their members. We present evidence that the ramifications of rent- seeking by strong local public unions are capitalized by local land markets. House values are 12% lower in cities with other two-thirds of their local public workforces organized by unions than in cities without such high levels of union organization.

The political economy of capitalization in a Tiebout model when there is a rent-seeking local public sector is examined. A new approach to test for the effects of successful local public worker rent seeking on property values is suggested and initial results are presented. We find evidence that potential residents are compensated through lower property prices in cities where local public employees earn substantially higher wages than similar local public employees earn on average in other cities. Finally, we expand upon how landowners, public workers, and renters can use the regulatory process to capture a share of the short-run rents associated with a Tiebout disequilibrium.

A new test of the compensating wage differential model is proposed. The logic behind Roback’s model, which shows how differences in nonproduced amenities may be reflected in intercity wage differentials, is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined. Differences in local fiscal conditions are shown to play important roles in explaining the variance in intermetropolitan wages.

Use of estimated compensating or equivalent variation benefit measures to analyze the distributional effects of subsidy programs can lead to biased results. The vast majority of previous studies have used average elasticity parameters to calculate individual compensating or equivalent variations. This can lead to measurement errors which are systematically related to program targeting criteria and result in biased distributional impacts being identified from analysis of cross-sectional estimated program benefits. The seriousness of this problem is illustrated in a case study with simulated data. The results suggest that much greater effort and care are warranted in ascertaining the robustness of estimates of the cross-sectional variation in the benefits of many subsidy programs

Differences in local fiscal conditions generate compensating differentials across local land and labor markets just as we have long known amenities to do. Thus the fiscal climate affects the quality of life across metropolitan areas. We present new results showing that intercity fiscal differentials are nearly as important as amenity differentials in determining the quality of life across urban areas. The paper also investigates the sensitivity of the quality-of-life rankings with respect to assumptions about the nature of the marginal entrant. We estimate a random effects model to account for city-specific error components in the housing and wage regressions. Those results indicate that the standard errors of previous OLS-based quality-of-life rankings have been biased downward substantially. More encompassing data on city traits as well as superior controls for worker and housing quality are needed to increase the precision of quality-of-life estimates.

The increasing use of impact fees represents a new trend in local fiscal policy which can have important effects on real estate markets. The ramifications for economic efficiency as well as for the pattern of metropolitan area development are not well understood by real estate academics or practitioners. Current discussion focuses primarily on who bears the burden of the fees. This paper shows that impact fees have interesting implications for a broader set of important issues. The fees provide communities with added flexibility in pricing entry into their jurisdictions, allowing existing residents to transfer to themselves the surplus associated with new development. Using impact fees can reduce the incentive for communities to engage in fiscally inspired exclusionary zoning. The optimal density of new development can increase following the introduction of fees. Widespread use of impact fees ultimately may help alter the current centralization in core cities of relatively poorer people and other demanders of high density development.

Cities with relatively high poverty rates remain high-cost places in which to live and work, even with hundreds of billions of dollars in means-tested monetary and in-kind transfers flowing annually to their poorer residents. Consequently, place-based aid to jurisdictions is needed to eliminate the cost differential between central cities and many of their suburbs that firms and middle-class households correctly perceive when they make location decisions. An Urban Audit is needed to provide estimates of how much aid is required to equalize poverty-related costs of various public services across jurisdictions and to provide localities incentives to employ the funds efficiently.

A survey of 23 industry practitioners from the development and finance fields yields a number of important conclusions regarding the financing of New Urbanism projects. First, these projects are perceived as generally riskier than typical real estate projects; their multiple-use nature is the basis ofthat perception. For urban infill projects, the perceived risk is low, while for suburban projects, the perceived risk is high. The relatively high perceived risk for most New Urbanism projects imposes relatively high required rates of return, which in turn require these projects to generate cash flow quickly to be financially attractive to investors. In addition, the development of multiple uses—or multiple product types—in a single project is viewed as inherently more difficult to evaluate and implement. Financiers consequently favor larger, more experienced developers for multiple-use projects in general and New Urbanism projects in particular.

The scale and size distribution of US metropolitan areas from 1910 to 1995 are documented and analysed. The data show that the country’s population became increasingly concentrated, prior to the Second World War, in the largest metropolitan areas in the top decile of the size distribution by population. The data leave little doubt that the largest labour market areas became increasingly attractive places in which to live and work during this time. In contrast to this pre-war trend, the data since 1950 show a loss of population share for the largest metropolitan areas in the top decile of the population size distribution. This loss of share by very large areas is not counterbalanced by increasing share among small or medium-sized metropolitan areas. Rather, the share is captured by the next-largest group of areas in the adjacent decile of the size distribution. Thus, while there is evidence of declining share for the very largest areas, there is no evidence that the rise of the services/information sectors of the economy has made small or medium-sized areas especially attractive places in which to live or work in the post-war era. In addition, the data provide only limited support for the hypothesis that a decline in the desirability of large metropolitan areas could account for the decline of many of the nation’s larger central cities.

We investigate the impact of the tax treatment of owner-occupied housing on urban form in an economy in which high and low income households choose among city and suburban communities. The spatial impact of housing tax policies differs depending upon the extent to which the subsidy is capitalized into city land prices and whether a land use constraint such as suburban large lot zoning exists to make poorer households less mobile. The greater the extent of capitalization, the larger the decentralization impact. And, in the presence of binding large lot zoning in the suburbs, the rich have a greater incentive to decentralize while the poor are constrained to the city. It is noteworthy that our analyses of community choice and residential sorting by income are not driven by different preferences for city or suburb that may be associated with the income elasticity of housing demand. Rather, our conclusions arise from changes in relative after-tax housing prices faced by poor and rich households. Determining the empirical relevance of prices versus preferences in these matters should be an urgent task for future research.

Urban decline is not the mirror image of growth, and durable housing is the primary reason the nature of decline is so different. This paper presents a model of urban decline with durable housing and verifies these implications of the model: (1) city growth rates are skewed so that cities grow more quickly than they decline; (2) urban decline is highly persistent; (3) positive shocks increase population more than they increase housing prices; (4) negative shocks decrease housing prices more than they decrease population; (5) if housing prices are below construction costs, then the city declines; and (6) the combination of cheap housing and weak labor demand attracts individuals with low levels of human capital to declining cities.

Cities are physical structures, but the modern literature on urban economic development rarely acknowledges that fact. The elasticity of housing supply helps determine the extent to which increases in productivity will create bigger cities or just higher paid workers and more expensive homes. In this article, we present a simple model that provides a framework for doing empirical work that integrates the heterogeneity of housing supply into urban development. Empirical analysis yields results consistent with the implications of the model that differences in the nature of house supply across space are not only responsible for higher housing prices, but also affect how cities respond to increases in productivity.

Are cities as politically polarized as states and countries? “No” is the answer from our regression discontinuity design analysis, which shows that whether the mayor is a Democrat or a Republican does not affect the size of city government, the allocation of local public spending, or crime rates. However, there is a substantial incumbent effect for mayors. We investigate three mechanisms that could account for the striking lack of partisan impact at the local level, and find the most support for Tiebout competition among localities within metropolitan areas.

Recent research into the urban quality of life (QOL) is reviewed and analyzed, with a special emphasis on the estimation of implicit prices of environmental attributes. New work has incorporated traditional concerns of urban theory into QOL analyses, as well as increased our understanding of specification bias problems in hedonic estimations. However, empirical research into the QOL finds itself at a crossroads, as the large city-specific error components in the underlying wage and housing expenditure hedonic specifications result in imprecise measurement of overall QOL values and rankings. Amassing higher quality databases to deal with this problem should be high on the agenda of those interested in this research program.