Firm Location and Job Creation in Cities

Cities are often viewed as places fostering employment. It is shown that the choice of a particular location within a city is a key factor for the creation of jobs by a new firm. This question is addressed in the context of a standard urban model in which existing firms are established at the city center and where workers compete on both the land and labour markets. The new firm is supposed to anticipate the impact of its location and wage decision on those two markets. Different urban configurations then emerge depending on the competitiveness of the existing firms on the labour market. More jobs are created as the firm sets up further away from the city center.