Urban Productivity Advantages from Job Search and Matching

Jeffrey Lin

Vice President and Economist

Q1 2011

Business Review — 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 this article, 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.

This article appeared in the First Quarter 2011 edition of Business Review.

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