Essays in Urban Economics

This dissertation studies the determinants of the spatial distribution of economic activity and how such activity is affected by public policy. The dissertation contains three chapters. In the first chapter, we ask: what role does labor market competitiveness play in determining the location decisions of firms and workers, and the resulting spatial wage distribution? To answer this question, we develop a model of monopsony power in spatial equilibrium. Workers and firms are free to locate in any labor market, and the degree of market power a firm enjoys depends on the number of competing firms in its location. We show the model can rationalize concentrations of economic activity and the city-size wage premium through an endogenous labor market competitiveness channel: in larger labor markets, endogenous firm entry increases labor market competition, decreasing wage markdowns and increasing equilibrium wages. To estimate the magnitude of labor market competitiveness differences across space, we utilize matched employer-employee data from Germany. Using a canonical empirical methodology from the labor economics literature on monopsony, we estimate that labor markets are significantly more competitive in larger cities. Calibrating the model to match this reduced-form evidence, we find endogenous labor market competitiveness can explain 37% of the city-size wage premium and 14% of all agglomeration. In the second chapter, we use the new framework developed in Chapter 1 to study the spatial and welfare implications of the 2015 German national minimum wage law. We first show a traditional spatial model that ignores variation in monopsony power across space predicts large unemployment effects in smaller, lower-wage labor markets, contradicting the reduced-form evidence on the effects of the law. Turning to our monopsony framework, we note that in the calibrated model, monopsony power is strongest in smaller, lower-wage labor markets: exactly those that the perfectly competitive model predicted would have the largest unemployment effects. Imposing the minimum wage in the calibrated monopsony framework, we find results in line with the reduced-form evidence — minimal unemployment effects, even in the lowest-wage labor markets, and therefore significant convergence in regional nominal wage inequality. Accounting for spatially-varying monopsony power, we find the enacted national law outperforms an alternative policy with a lower level of the minimum wage in East Germany, while a law that takes into account variation in productivity and competitiveness significantly outperforms both. In the third chapter (joint with Pablo Ernesto Warnes and Timur Abbiasov), we examine the effects of pedestrianization on business visits. There are significant debates in urban planning on the use of road space in cities. Should (some) streets be pedestrianized? Critics suggest closing streets to vehicles can harm local businesses by reducing access. The effect of pedestrianization on business visits has been difficult to assess due to the lack of an appropriate experiment and lack of systematic data on foot traffic. We examine a unique recent experiment, New York City's Open Streets program, which closed hundreds of street segments to cars, and utilize new anonymized cellphone geodata to measure visits to businesses. Using a matched difference-in-differences design, we find small effects of the program on visits overall, with sufficient precision to rule out significant negative effects, contradicting critics' predictions. We find significant positive effects on visits for Open Streets further from the Central Business District, especially for restaurants and bars. For such businesses, we find a 14% increase in visits as a result of the program