Land development, search frictions and city structure

• This paper analyzes the interactions between labor and housing (and land) markets in a city.
• We then characterize different spatial configurations in the city.
• We show how equilibria are affected by land and labor market parameters.
• We further explore the effects of policies.
• We extend our model by assuming that the job arrival rate depends on the distance to jobs.

This paper analyzes the interactions between labor and housing (and land) markets in a city. We develop a monocentric city model involving land development and frictional unemployment and characterize the city's spatial configurations in equilibrium. To better understand the properties of equilibria, we implement a comparative steady state analysis. Further, we explore the effects of policies such as (a) a tax on land development to subsidize residents' consumption, (b) a subsidy to improve the transportation infrastructure financed by a lump-sum tax, and (c) income transfers from employed to unemployed workers. Finally, we provide an extension wherein the job arrival rate is endogenous and depends on distance to jobs.