How does the household structure shape the urban economy?

Households in real cities are heterogeneous regarding their size and composition. This implies that the household structure – i.e. the (average) household size, the composition, the relative share of different household types, and the number of households – differs across cities. This aspect is usually completely neglected in urban models used to study economic and policy issues that arise in today's cities. Furthermore, the household structure might change over time. For instance, over the last decades average household size has decreased in many countries. Several implications of this change have been discussed, but usually not in regard to an urban economy with its interdependencies. We develop an applied urban general equilibrium model (based on Anas and Xu, 1999 or Anas and Rhee, 2006) which explicitly takes the household structure into account and thus allows studying the impacts of differences in the household structure on urban areas. The paper shows that the household structure affects an urban economy and its spatial pattern in various ways and may contribute to explain economic and spatial effects on cities and differences across cities. Compared to a ‘Base City’ which reflects the actual household structure in the United States, urban labor force participation, housing demand, rents, wages as well as urban commuting and shopping patterns are considerably affected by, e.g., differences in the average household size in a city. For instance, wage inequality between differently skilled workers raises and extreme cross commuting drops to almost zero when the city turns into a ‘Singles City’. Hence, pure economic forces associated with the household structure may shape cities in a different way, implying that the impacts of urban policies may depend on the household structure and therefore differ across cities.