Suburban Sub-centers and employment density in metropolitan Chicago Daniel P. McMillen (Tulane U) John F. McDonald (U of Illinois) Journal of Urban Eco, 1998

Introduction (1) A location well served by highways, rail lines and other transportation network may attract many firms even when the firms have no interest in locating near one another ---- suburban sub-center may form near transportation centers. Accessibility to these sub-centers lead to employment concentration. This implies that scale economies -- agglomeration (transportation saving cost) can generate concentration of employment at certain locations within an urban area.

Scale Economies - transportation network Transportation network

Theoretic Framework Bid-rent function is used to see effects of suburban sub- center on employment density. A bid-rent function represents the maximum amount a firm or an individual will pay for a unit of land. In standard mono-centric model, the bid-rent function is a simple function of distance from the city center -- because all economic activities is assumed to take place there. Here, sub-urban employment is influenced by access to expressway interchanges and other features of the transportation network. (cont…)

Theoretic Framework (2) Such accessibility measures are represented by the vector A, sub-center access measures by vector S and idiosyncratic characteristics (clear, level land, swampy) by C, this affects construction cost. Hypothesis Employment probability in the sub-centers Their impact on employment density

Methodology Non-residential: lnR 1 =  1 X +  1 X = (A,S,C) Household:lnR 2 =  2 X +  2 Net employment density: ln(E/Le) =  ln R 1 +  1 =  1 X +  1 +  1 Gross employment:lnD = Z +  (1) Employment density is a function of the same variables that determine land rents. Employment density increases when non-residential land rent increases

Methodology (2) Employment density increases when non-residential land rent increases Employment density decreases when residential land rent increases Prob (I=1) = Prob (  Z + > 0 ) (2) This equation determines whether there is some employment in a zone or not. Correlation between  and implies employment density functions are subject to selection bias.

Estimation Procedure Two-stage method: a) probit/logit b) OLS Maximum-likelihood estimation: E (lnD/I=1) = Z +  u  (  Z) /  (  Z) Northeastern Illinois Planning Commission data Sub-center identification : A set of nearby tracts that each have at least 10 employee/acre in either 1980 or 1990 and together have an average over the 2 sample years of at least 10,000 employees sub-centers

Estimation Results Expect: Increasing distance from a suburban employment sub-center lowers non-residential bid rents if scale economies exist --- lower employment density -- negative coefficient on distance ---- lower employment

Estimation Results (2)

Estimation Results (3)

Conclusion Correlation between errors of employment density and employment probability exists ---OLS estimates are subject to selection bias -- either two-stage method or maximum likelihood is appropriate. Transportation facilities are subject to economies of scale. Firms will cluster near transportation facilities even if there are no direct benefits of locating near one another. The empirical results show that the measures of access to the transportation system are highly statistically significant determinants of both employment probability and employment density.

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