Elastic Labor Supply and Agglomeration

Author Name AGO Takanori  (Senshu University) /MORITA Tadashi  (Kindai University) /TABUCHI Takatoshi  (Faculty Fellow, RIETI) /YAMAMOTO Kazuhiro  (Osaka University)
Creation Date/NO. October 2015 15-E-118
Research Project Spatial Economic Analysis on Regional Growth
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This study analyzes the interplay between the agglomeration of economic activities and interregional differences in working hours, which are typically longer in large cities, as normally they are more developed than small cities. For this purpose, we develop a two-region model with endogenous labor supply. Although we assume a symmetric distribution of immobile workers, the symmetric equilibrium breaks in the sense that firms may agglomerate when trade costs are intermediate and labor supply is elastic. We also show that the price index is always lower, while labor supply, per capita income, real wages, and welfare are always higher in the more agglomerated region.