Growth and Limiting Growth Allen C Goodman 2006

Growth, and Limiting Growth © Allen C. Goodman, 2006

Employment Growth • Bartik has done a lot of good work. • Who gets new jobs, residents or newcomers? • How does an increase in total employment affect real income per capita?

Impact of 1% Increase in jobs

Employment Growth In-migration and Population Growth • If city’s workforce is as qualified for jobs as workers elsewhere, original residents will get about ¼ of new jobs. • If less qualified, they’ll get fewer. • Employment growth increases population and thus increases demands for housing, land, and public services.

Real Income per Capita • Increase in real wage for each occupation – Depends on labor supply response • Promotions – Growth seems to hasten workers’ movements upward in the job hierarchy • Increase in employment rate – Decrease in unemployment rate and increase in participation rate. Leads to more income/person.

Composition of Employment • Eberts and Stone did good work. • Increases due to: – Openings of new firms – Expansions of existing firms • Decreases due to: – Closings of existing firms – Contractions of existing firms

Look at Midwestern Cities • Cleveland, Detroit, Milwaukee, Chicago. • All grew less than national average, suggesting some regional impacts. • Major differential impacts came from expansion rather than contraction.

Eberts/Stone • Find LARGE range of changes in net employment. Even in a 2 year period, these range from -8. 19% in Pittsburgh to +19. 36% for San Diego. • Gross changes in employment are large relative to net changes. All cities have both gains and losses. • Rapidly growing cities have BIG gains, rather than losses. SMALL

Limiting Growth Zoning

Revisiting Model Business Land Rent • We had business more centrally located. • Then residential. • At edge of the city, we get farmland. Residential Agric. City limits Distance

What is Zoning? • Zoning involves a set of restrictions on what people can do with their land. • Generally imposes the restriction with some sorts of public good in mind. • Discuss

Revisiting Model Business Land Rent • Suppose we forbid land development past a certain distance. What will the impacts be? • Immediate impact? • City ends at boundary! Service boundary Residential Agric. City limits Distance

More general effects. . . • Limiting size of city reduces labor supply – Wages rise, but, – This induces immigration from outside. • Since we have a smaller city, rents and density MUST RISE • Business sector bids less for land, because nonland costs have risen. . . • Residential sector bids land away from the business sector. So we will see. . .

Revisiting Model Business Land Rent • Ultimate impact depends on whether change is “small” or “large. ” • If it is “small” residents can’t be better off, because others would migrate in. Service boundary Residential Agric. Distance City limits

Ultimate winners and losers • Residents neither win nor lose. Migration keeps their utility constant. • Landlords outside the service boundary lose. • Residential landlords win. • Business landlords lose. • Zoning is about land.

Among urban areas, what must happen for business profits to be constant? Rent, R Equilibrium for a city, in the land labor markets U = u* Why? Among urban areas, what must happen for consumer utility to be constant? Re = * Why? Eq’m where 2 curves cross! Why? we Wage, w

Suppose that business taxes are lowered in the city. Business profits will rise, and firms will want to move in Rents rise Increased demand for workers will lead wages to rise. In new eq’m, Rents are higher, wages are higher, Workers are no better off than before Rent, R Equilibrium for a city, in the land labor markets U = u* Re = * we Wage, w