Does the Structure of an Urban System Affect Income Disparities?

In this paper I analyze the impact of basic training and specialized training on the distribution of skill, income disparity, social welfare, and on the structure of a decentralized specialized city system. This is done in a spatial general‐equilibrium model of a closed economy producing a single consumption good. The economy is populated with a continuum of unskilled labor with potential heterogeneous ability. The only consumption good can be produced by specialized technology or by general technology. Specialized technology requires specialized training that enables each worker to transform his potential ability into productivity. General technology requires basic training that enables all workers, independent of their potential ability, to produce the good at a constant marginal product. In this framework I show that such an equilibrium exists uniquely and is efficient. Then I characterize the conditions that lead to a different distribution of skills, a different system of cities, and generate income disparity endogenously. Thus, the paper presents a link among income disparities, social welfare, and the structure of an urban system that is new to this literature.