DP7403 | Aging Nations and the Future of Cities

Publication Date

09/08/2009

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Abstract

We investigate whether an aging population may challenge the supremacy of large working-cities. To this end, we develop an economic geography model with two types of individuals (workers and retirees) and two sectors (local services and manufacturing). Workers produce and consume; the elderly consume only. As a result, the mobility decision of workers is driven by both the wage gap and the cost-of-living gap, unlike the elderly who react to the differences in the cost of living only. We show that the return of pre-industrial urban system dominated by rentier cities does not seem to be on the agenda. Quite the opposite, the future of large working-cities is still bright, the reason being that today?s urban costs act as a strong force that prevents a large share of local services and manufacturing firms from following the rentiers in the elderly-cities, while the supply of differentiated b2c services prevent their complete separation.