Heterogeneous labor and agglomeration over generations

Productivity in cities is enhanced by diverse workers from various regions and countries. However, agglomeration can homogenize the workers over time. To investigate the transition of labor diversity in the agglomeration process, this paper presents a two-region non-overlapping generations model. Workers are assumed to be differentiated in terms of their birthplaces, and the distribution of the birthplaces depends on their previous generation's residency choices. As a main result, this paper shows that the generational transition changes the birthplace distribution, which allows the workers to keep migrating to the core region. The agglomeration of workers results in a loss of labor diversity. On the other hand, the social welfare is maximized by an even distribution of birthplaces, which involves a persistent interregional circulation of workers. In addition, the following two extensions of the model explore the possibility to achieve the social optimum: A housing consumption results in a dispersion of the birthplaces that maximizes the social welfare; Additional agglomeration economies due to the amount of labor results in an over-concentration of the birthplaces, compared with the social optimum.