Using a computable general equilibrium model to explore economic impacts of agglomeration economies on wages in northern Colorado
Date
2011
Authors
Gongwe, Anne Grace, author
Cutler, Harvey, advisor
Fan, Chuen-mei, committee member
Shields, Martin, committee member
Davies, Stephen, committee member
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Abstract
Agglomeration economies are forces that lead to concentration of workers and businesses in one location, and are also known as external economies of scale. This dissertation explores the economic impacts of agglomeration economies on nominal and real wages using a data intensive computable general equilibrium (CGE) model. The dissertation is divided into three essays. The first essay focuses on establishing the impacts of export-led expansions on nominal and real wages for two cities of different sizes and labor market characteristics in northern Colorado. Results of this essay show that when employment is expanded for each sector separately, nominal and real wages increases more in Loveland (a thinner labor market) than Fort Collins (a thicker labor market). A larger number of households are attracted to Fort Collins as opposed to Loveland and this leads to high supply of labor. Increased labor supply causes a downward pressure on wages in Fort Collins. These results suggest that "labor supply effects" outweigh "productivity effects" in the thicker labor market. The second essay analyzes the performance of nominal and real wages when two cities of different sizes and labor market characteristics are exposed to various levels of production externalities. The results demonstrate that when sector-specific export demand and production externalities is increased, the nominal and real wages increase more in Fort Collins than Loveland supporting previous studies findings that productivity increases with city size. The results also reflect that wages increases more with the level of production externalities. The results also show that different sectors are impacted differently with the same economic shock, making sector-wise analysis more appropriate than the aggregate analysis. The third essay has two major parts. The first part focuses on the economic impacts of consumption externalities on nominal and real wages. The results show that an increase in sector-specific export demand and level of migration elasticity increase nominal wages in all labor groups in all three productive sectors with the exception of labor group three in the retail sector in both cities. The second part of this essay focuses on the net economic impacts of production and consumption externalities wages in these two cities. The results show that nominal wages and real wages increase in all sectors for all labor groups except for the higher skilled workers in the retail case in Loveland. Results also show that, the nominal and real wage increase is less with the higher level of consumption externalities. These results suggest that when the level of consumption externalities is sufficiently higher than production externalities, real wages will decrease.
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Subject
agglomeration economies
amenities
consumption externalities
production externalities
productivity
thick labor market