THE SIZE OF THE CITY AND UNEMPLOYMENT RATE

The size of the city and unemployment rate

The size of the city and unemployment rate

Introduction

The difference in unemployment rates between countries, provinces, states, regions, or cities, is an issue that has puzzled regional scientists for several decades, and continues to do so. While a considerable amount of work has been done at the country and province/state/region level, the analysis at the city level is much less developed. This paper will focus on city unemployment rates, with special emphasis on the role of economic diversity, in order to add to the general understanding of variations in the level of unemployment across Canada. Some of the difficulties in explaining unemployment rate variations across Canadian provinces stem from data aggregation. While few regional scientists would expect urban and rural unemployment rates to be the same, little has been done to incorporate this into models attempting to explain inter province differences. In fact, as indicated in Table 1, there are large differences between rural and urban unemployment rates within, and across, provinces. Since different regions have different proportions of their citizens living in cities and these cities have different characteristics, understanding why unemployment rates differ between cities will add to our overall understanding of provincial/state/country unemployment rate variations.

The Background and the Theory

The early work, with regards to urban unemployment rates, centred on an observed negative relationship between city size and city unemployment rates (Vipond 1974; Sirmans 1977). During this same period the relationship between city size and economic diversity was also being investigated (Clemente and Sturgis 1971; Brewer and Moomaw 1985). The initial melding of these two streams of literature concentrated more on city employment stability than unemployment rates (Barth et al 1975; Brewer and Moomaw 1985). Only recently has the issue of diversity been analysed with regard to its impact on unemployment rates (Malizia and Ke 1993). This paper will add to the unemployment rate literature with the use of two Canadian pooled data sets.

Economics diversity is hypothesised to impact unemployment rates by affecting the duration of structural unemployment. Two assumptions are used in order to generate this unemployment: downward wage rigidity; and a rigidity in labour mobility between cities. The possible causes of wage rigidity are well known in the labour literature (Benjamin et al 1998). Labours' lack of mobility may be due to social/financial/ or uncertainty concerns which arise when relocating one's family. Generally speaking the longer it takes for wages and labour to adjust, the longer will be the expected duration of unemployment. In order to determine the effect of industrial diversification on the duration of structural unemployment let us assume that a negative demand shock hits a particular industry.

The more industrially diversified the city, the smaller will be the proportion of workers affected by the shock. Workers which are affected will begin to look for employment in different industries and if there are only a small number of workers they may all be employed in the other sectors relatively easily (perhaps ...