New Working Paper on Income Segregation and Urban Spatial Structure

A working paper co-authored with Miquel Àngel García López entitled “Income Segregation and Urban Spatial Structure: Evidence from Brazil” is now available as part of the CAF Working Paper Series. In this work, we estimate the effect of urban spatial structure on income segregation in using data for 121 Brazilian cities between 2000 and 2010. We show how the effect of local density varies between monocentric and polycentric cities, and between income groups.

This paper is part of a line of research trying to link the distribution of employment within cities with the distribution of the population by income groups, in order to understand the possible causes of residential segregation by level of income in urban areas.

 

Informality in the City: A Theoretical Analysis

Looking for theoretical guidance in the urban economics literature when analyzing problems of cities with large informality rates can be quite challenging. Most models have been designed for urban realities where there is no informal employment or informal housing, both of which are hard to ignore in cities in emerging and developing countries. The outstanding doctoral thesis of Héctor Mauricio Posada explores innovative ways in which informality can be incorporated into existing theoretical urban models to study questions related to urban expansion, transport provision and migration, among others. The thesis leads to many interesting insights that serve as basis for much needed future theoretical work, and identifies relevant connections that can be translated into empirically testable predictions.

Public transport expansions and informality

The São Paulo Metropolitan Region faces an acute deficit of public transport infrastructure, making commutes long and costly for workers. The difficulty in accessing jobs centers may translate into higher informality rates, since workers may be discouraged to take formal jobs, miss on information about job opportunities, or even be discriminated against according to  their place of residence.

Sé metro station, Corinthians-Itaquera direction. Source: Viatrolebus

In a new working paper co-authored with Frederico R. Ramos, we estimate the impact of public transport expansions on local informality rates. An important part of the explanation for the large deficit in transport infrastructure are chronic project delays. We use this information in our methodological approach to compare areas that received new transport infrastructure with areas where new train/metro stations or bus corridors were planned, but eventually not built.

Example of areas with (left) and without (right) a bus corridor. Source: Google Earth

After controlling for endogenous selection, we find this impact to be significant: informality rates decreased on average 16% faster in areas that received new transport infrastructure, compared to areas that faced project delays.

On transport subsidies and employment

The current mayor of Bogotá, Gustavo Petro, launched last week a transport subsidy program for the poor. At least 300,000 people covered by the nationwide health subsidy program (Sisben) can now obtain a transport card allowing them to travel in the integrated transport system of the city at a reduced rate. According to the mayor, the subsidy is the flagship policy for poverty reduction of his administration, as it will allow the poor to access more job and income generation opportunities, even if these opportunities are at the bottom of the informal economy (nivel de rebusque).

While this policy may be good news for poverty reduction, my co-author Héctor Mauricio Posada and I have found in our recent paper that a policy that offers transport subsidies for informal workers only will imply an increase in the share of informal employment, and a decrease in overall welfare in the city. In our theoretical model, informal workers have the possibility to engage in home-based work and save in transportation costs, while formal workers commute every day to work in the city center. A subsidy targeted only for informal workers means that formal firms have to offer higher wages in order to compensate workers for higher transportation costs, which implies a reduction in formal employment creation.

We find that investing the money of the subsidy in alternative policies aimed at reducing the frictions in the job market, such as a the recently created Public Management Agency for Employment  (Bogotá Trabaja), or expanding the coverage of the transportation network, implies a reduction in the informality rate, and an increase in overall welfare.

While our findings rely on a very stylized model that does not consider many other relevant elements, such as access to basic services and their impact on poverty reduction, they highlight the importance of considering the unintended effects of policies targeted at the poor on the labor market at large. Sustainable urban policies require not only better physical access, but also an increase in the share of higher quality jobs offered in the city.