Urban Joblessness, Location and Hysteresis - A Theoretical Approach

Abstract

The paper develops and solves a simple model of urban Location choice when there is a location-based income externality such as a tendency for schools to be better in high income areas than low income areas. In the model, households choose between consumption of a Location externality, paid for by rent, and consumption of ordinary goods and services. It is shown that the extent to which groups with different incomes separate into different areas depends nonlinearly on the unemployment rates and benefit levels can lead to a rapid clustering of jobless people into Low rent areas.