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City Size and Urban Economics Research Paper


Introduction

It is apparent that people move from one place to another in search of better lives where utilities would be higher. Oftentimes, people move from rural areas to urban centers or from small cities to larger ones. These rural-urban and urban-urban migrations are influenced by the perceptions that larger cities have more benefits than rural areas and small cities (O’Sullivan 71; Petrasyuk 3).

However, it is worth noting that bigger cities have many undesirable characteristics such as longer traveling times, greater density, higher levels of pollution, and increased congestion (O’Sullivan 72; Lobo, Bettencourt, and Strumsky 1).

This paper investigates the negative effects associated with the increased size of cities that reduce the utilities for the typical workers. As such, it is appreciated that working in big cities have some benefits since there are trade-offs that that offset the benefits. The paper seeks to address the question of whether workers’ utility can reduce with increasing city sizes.

It is worth noting that the topic of city size and its effects on utility has been the subject of study in many countries for a considerable time. Nevertheless, time in history varies from country to country. For instance, countries with longer histories of urbanization and modernization are likely to have long histories of studying the topic than countries whose urbanization processes are recent.

Investigating the negative effects of larger cities is significantly vital to various stakeholders. For scholars, the topic is an interesting field for study since it provides vital insights into the dynamics and features of urban economies and their implications to city dwellers. On the other hand, city dwellers and people working in urban centers will find this topic of the relationship between city sizes and utility as very important since it elucidates the trade-off between agglomeration economies and diseconomies of scales of working in cities. The topic is also a crucial decision-making tool regarding urban-urban migrations. Lastly, policymakers in cities would find the topic rather informative and, therefore, important in making vital legislation pertaining to issues such as decongestions, pollution, and commuting efficiency.

Literature Review

As mentioned earlier, the topic of relationships between city size and utility attracted the attention of scholars throughout the world and from different times in history depending on countries’ urbanization history. Currently, scholars and pundits have carried out many studies and, therefore, there are numerous literature materials on the topic.

Turok and McGranahan (465) investigated the relationship between urbanization and economic development where they paid key interest on the argument and evidence for whether rapid increases in city size and fast urbanization can affect the living standards of city dwellers.

Their key findings propose that the development effects of rapid urbanization and increases in city sizes and agglomeration economies vary from one scenario to another. As such, the authors suggest that there is no simple linear association that links urbanization to productivity and, therefore, no modest correlation between city size and utility.

Moreover, the authors argue that without conducive infrastructural frameworks, institutional settings, and supportive policies, benefits of city size and urbanization could be offset by rising congestion/overcrowding, overloaded/overused infrastructure, pressure on ecosystems/environment, increased costs of living, and extremely high labor and assets /property costs. In addition, it is clear that negative features are likely to increases with increasing city sizes, particularly if urban development is not based on proper planning. In Africa, which was the area of focus, the negative effects of haphazard increases in city sizes, including dysfunctional systems, gridlock, power and water rationing, high costs, and low productivity.

Petrasyuk (1) sought to establish whether the neoclassical urban system models are useful in determining and predicting optimal city size. The author linked big cities to better opportunities of employment in relation to smaller cities. As such, optimal city size is obtainable with the neoclassical urbanization model, especially when proper frameworks are employed.

Nevertheless, it was also apparent that bigger cities are associated with negative externalities, including congestion, pollution, and high costs. However, the author noted that the benefits of bigger cities outweighed the agglomeration externalities and, therefore, the net utilities of living in big cities are higher relative to living in smaller cities. This could be proven by the constant rural-urban migration and small urban-big urban migrations.

Lobo, Bettencourt, and Strumsky (5) asserted that city population size is a significant element that determines the intensity of socio-economic dynamics in cities. Moreover, the authors noted that the topic of city size and productivity/utility is crucial. As such, investigating the relationship between size and utility/productivity is important. From the literature used by Lobo, Bettencourt, and Strumsky (225), it was apparent that there exists a positive correlation between city size and utility. Nevertheless, the positive correlation is strengthened by proper supporting frameworks and weakened by haphazard urbanization.

Harriet, Poku, and Emmanuel (225) investigated the negative effects of traffic congestion in Ghana, especially on the productivity of city workers. The authors selected Kumasi Metropolis, which is a strategic transportation link between different parts of Ghana and, therefore, a big city prone to congestion externalities.

The authors found out that traffic congestion, which is one of the agglomeration externalities associated with big cities, negatively affects workers’ productivity in both formal and informal sectors. In the formal sector, Harriet, Poku, and Emmanuel (233) revealed that congestion led to a loss of 14-25% of revenue while the formal sector lost almost 10% of the working hour.

Increases in city sizes lead to increased expenditure, which negatively affects workers’ utility. Shan and Qian (118) proposed that increases in city sizes are associated with extra spending, congestion, and pollution among other negative effects. The authors were concerned with increases in parking fees that are associated with big cities traffic congestions. It was apparent that more vehicles increased the demand for parking fees, which increased expenditure and consumption level and, therefore, reduced workers’ utility.

Theoretical Framework

To conceptualize the subject of study in this paper, the utility model used by O’Sullivan will be adopted. O’Sullivan (72) considered workers’ utility as a function of various variables, including labor income, rent income, transportation/commute cost, and rent paid. As such, the model below would be vital in this paper’s investigation.

Utility = labor income + rental income – commute cost – rent paid

It is apparent that city size and agglomeration economies have effects on each of the variables in the model above.

First, there are positive and negative correlations between city size and labor income depending on the scenarios under investigation. In positive correlation scenarios, working in big cities result in increased labor income. These cases are evident in many big cities in the world and are a major cause of rural-urban and urban-urban migration (O’Sullivan 73; Lobo, Bettencourt, and Strumsky 4).

However, a negative relationship between city size and labor income is also evident where agglomeration diseconomies and externalities affect workers productivity. A good example is the loss of revenue and working time resulting from traffic congestion (Harriet, Poku, and Emmanuel 233). Second, rental income is more likely to increase with the increasing size of a city. Third, big cities are associated with traffic congestions, which oftentimes increases commuting time and costs. Fourth, paying rent is likely to be expensive with increasing city size.

Having this conceptual framework in mind, a thesis for the paper is developed. As such, the paper is based on the thesis that working in big cities does not always result in increased worker’s utility.

The reasoning of the thesis could be explained using the O’Sullivan’s model where Utility = labor income + rental income – commute cost – rent paid. It is logical that when one of the independent variables in the model above is affected by city size, the worker’s utility (which in the model is a function of the independent variables) will be affected. In some instances, the negative effects override the benefits of city size. In such cases, increases in commute costs and rent expenses may not have corresponding increases in labor income and rental income.

Methodology

Secondary data were used in this paper in supporting the thesis that working in big cities does not always result in increased worker’s utility. Two sets of data were obtained from published literature material.

The first set of secondary data was obtained from the work of Harriet, Poku, and Emmanuel. Harriet, Poku, and Emmanuel (225) used questionnaires in the collection of primary data and descriptive statistics used to make the analysis. The results indicated that congestion, which is a perfect of negative effects of big cities, has negative correlations with workers productivity.

The second set of data was adopted from O’Sullivan’ work, which was based on scientific research across cities with different sizes of the population. After an analysis, the author noted that increases in city size lead to increases levels of utility, income, commute cost, and wages. Nevertheless, the wages and incomes increased at diminishing rates as the cities became more and more populous. Interestingly, when the income was increasing at diminishing rates, the cost of the commute was doubling with increasing city size.

From the first set of data, it is evident that city size can negatively affect productivity and, therefore, reduce workers’ income, especially in big cities without proper planning. In the second set of data, it is evident that increasing city size increases commute costs in double figures.

To test the thesis that working in big cities does not always result in increased worker’s utility, the model Utility = labor income + rental income – commute cost – rent paid was used.

Analysis

From the data used in this paper, it is evident that city sizes have impact on various economic factors. Harriet, Poku, and Emmanuel (225) indicated traffic congestions reduce workers’ productivity while O’Sullivan demonstrated that doubling the size of a population resulted in doubling of commute cost.

As such, city size has a strong positive correlation with commute cost. On the other hand, the rate of productivity improves with increasing size of a city. Using the model Utility = labor income + rental income – commute cost – rent paid it is evident that utility increases with the increasing size of a city.

However, the diminishing agglomeration economies in labor income and wages and the strong positive correlation between city size and commuting cost makes the correlation between city size and utility change.

From the analysis, it is evident that there are instances where workers utility reduces with increasing city size. The utility level drops from 70 to 66 when the number of people in a city increases from 2 million to 4 million.

Utility levels could even get lower in cases where the diseconomies reduce worker productivity and consequently reduce labor income (as it is evident in the case of the city in the study by Harriet, Poku, and Emmanuel). The results are similar to the findings in many empirical studies.

For instance, Petrasyuk found out that some urban centers have optimal levels of operation. Going beyond the optimal level, especially where population goes beyond certain limits, the levels of utility drastically reduce. In such situation, the real wages of the population living in cities with populations beyond the optimal level reduces.

Policy implication

The results indicate that workers’ utilities could reduce with increasing city sizes. When certain cities’ populations go beyond certain optimal levels, agglomeration economies become weaker than diseconomies from negative externalities.

Therefore, it is suggested that the optimal size of cities are established where possible and steps taken to ensure that cities operate optimally. Some of the apparent measures that could reduce diseconomies of scale include proper urban planning.

Moreover, developing countries should focus on workers utility as an integral aspect of urbanization. As such, smaller cities should be adopted where they are more likely to foster economic growth in relation to bigger cities as suggested by Abou-Korin (377).

Limitations

The study over-relied on secondary data, which could have certain limitations. For instance, the data by Harriet, Poku, and Emmanuel (225) were homogenous and, therefore, the generalizability of the findings is hard to be realized.

Conclusion

This paper has endeavored to address the question whether workers’ utility can reduce with increasing city sizes. It is commonly perceived cities with big sizes are better to work in in relation to smaller sizes. This perception is what informs many decisions to migrate from smaller cities to larger ones or from rural to urban areas.

From the literature material used, it is apparent that agglomeration economies increase with increasing city sizes. As such, dwellers in big cities are likely to earn higher incomes than those in smaller cities. However, diseconomies of city size also increase with increases in city size.

Cities should operate at certain optimal levels where the agglomeration economies are at highest level and higher than diseconomies. Beyond the optimal levels, the utilities for city dwellers start falling. Future research should incorporate cities from all over the world, especially from developing countries.

This finding supports the thesis that working in big cities does not always result in increased worker’s utility. In instances where the agglomeration economies are weaker than diseconomies, workers’ utility is negatively affected.

Cities developers and policymakers should incorporate key factors such as agglomeration diseconomies, including congestion, overcrowding, high costs of housing, increasing commute costs, and high costs of other amenities in urban planning.

Appendix

Workforce (million)/city size Wage Labor income Commuting cost Utility
1 $8 $64 $5 59
2 $10 $80 $10 70
4 $11 $88 $22 66

Source: (O’Sullivan 71).

Utility increases when city size doubles from 1 million to 2 million but reduces when the size doubles from 2 million to 4 million.

Works Cited

Abou-Korin, Antar A. “Small-size urban settlements: Proposed approach for managing urban future in developing countries of increasing technological capabilities, the case of Egypt.” Ain Shams Engineering Journal, vol. 5, no. 2, 2014, pp. 377–390.

Harriet, Takyi, Kofi Poku, and Anin Kwabena Emmanuel. “An Assessment of Traffic Congestion and Its Effect on Productivity in Urban Ghana.” International Journal of Business and Social Science, vol. 4, no. 3, 2013, pp. 225-234.

Lobo, Jose´, et al. “Urban Scaling and the Production Function for Cities.” PLOSE One, vol. 8, no. 3, 2013, pp. 1-23.

O’Sullivan, Arthur. Urban Economics. He Standard Ise, 2012.

Petrasyuk, Ostap. “Breaking the optimality barrier: does neoclassical urban theory necessarily predict an optimal city size?” JEL, (n.d.), pp. 1-23.

Shan, Liqin and Shaodan Qian. “The Price Mechanism Analysis of Parking Fees on Economic Perspective.” International Journal of Business Administration, vol. 6, no. 2, 2015, pp. 118-123.

Turok, Ivan and Gordon McGranahan. “Urbanization and economic growth: the arguments and evidence for Africa and Asia.” Environment and Urbanization vol. 25, no. 2, 2013, pp. 465-482.

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IvyPanda. (2020, October 18). City Size and Urban Economics. Retrieved from https://ivypanda.com/essays/city-size-and-urban-economics/

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"City Size and Urban Economics." IvyPanda, 18 Oct. 2020, ivypanda.com/essays/city-size-and-urban-economics/.

1. IvyPanda. "City Size and Urban Economics." October 18, 2020. https://ivypanda.com/essays/city-size-and-urban-economics/.


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IvyPanda. "City Size and Urban Economics." October 18, 2020. https://ivypanda.com/essays/city-size-and-urban-economics/.

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IvyPanda. 2020. "City Size and Urban Economics." October 18, 2020. https://ivypanda.com/essays/city-size-and-urban-economics/.

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IvyPanda. (2020) 'City Size and Urban Economics'. 18 October.

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