What's wrong with the "regional town centres" model?

It fragments the labour market, a key benefit of living in a large city

In a recent post, Jens von Bergmann and Nathan Lauster describe the history of Metro Vancouver’s planning regime. In particular, they describe the Livable Region Program developed in the 1970s to “manage” growth, limiting it and distributing it across different regions instead of allowing people to live closer to the geographic centre, with easy access to jobs.

A part of the Livable Region Program was developing “regional town centres” which would be job centres and alternatives to downtown Vancouver: Metrotown, downtown New West, Coquitlam, and Whalley.

The idea of setting up regional centres, with a balance between jobs and housing in each region, sounds plausible. But Alain Bertaud points out that it’s a utopian idea which doesn’t work in practice. People are willing to commute to a job which provides a closer match to their skills and their interests, rather than just taking a job that happens to be close to where they live.

People move to a city because it provides a deep labour market with lots of jobs. This allows for specialization and greater productivity, as well as greater security. To quote David Schleicher’s “Stuck!”:

A primary agglomeration benefit of deeper labor markets is that they simultaneously allow greater specialization and reduce firm-specific risk. For example, actors in Los Angeles have all sorts of advantages over actors in Milwaukee. A Los Angeles actor can increase his wages by specializing in, say, the role of a zombie or mafia henchman. By contrast, a Milwaukee actor has to play whatever roles he can come by. A Los Angeles actor can safely invest in human capital knowing that there will be jobs he can access without moving. The Los Angeles actor has “insurance” that a firm-specific failure—the owner of a theater investing with Bernie Madoff, for example—will not leave him jobless and forced to move. On the other hand, a similar firm-specific failure at one of the relatively few theaters in Milwaukee could end an actor’s career in that city.

The regional centre approach is basically attempting to fragment the labour market into smaller markets, nullifying these benefits. The “15-minute city” is a more recent version of the same idea.

Alain Bertaud, Order Without Design:

According to the proponents of this model [the “urban village”], everybody could walk or bicycle to work, even in a very large metropolis. To allow a city to grow, it would only be necessary to add more clusters. The assumption behind this model is either that urban planners woud be able to perfectly match work places and residences, or that workers and employers would spontaneously organize themselves into the appropriate clusters.

This model does not exist in the real world, because it contradicts the economic justification of large cities: the efficiency of large labor markets. Employers do not select their employees based on their places of residence; neither do specialized workers select their jobs based on proximity from their residences.

The urban village model implies a systematic fragmentation of labor markets in a large metropolis that does not make economic sense in the real world. A firm that would be satisfied to restrict the selection of its employees to the vicinity of its factory or office would not need to locate in a large metropolis where rents and salaries are higher. This firm could locate in a small town where the unspecialized workers it seeks could be recruited for a lower salary.

An example of what happens in practice:

The five satellite towns built around Seoul are an example of an attempt to implement the urban village concept. The government built the new towns under the assumptions that they would be self-contained and that most inhabitants would work and live within their own towns. To achieve this objective, planners carefully balanced the number of projected jobs in each town with the number of projected inhabitants. However, subsequent surveys showed that most people living in the new satellite towns commuted to work in the Seoul metropolitan area, and most of the jobs in the satellite towns were filled by people living outside them.

More

• Alain Bertaud, Order Without Design

• David Schleicher, “Stuck!”

• From 2016: Mike Moffatt and Hannah Rasmussen propose deepening labour markets in mid-sized cities. Includes an explanation of deep labour markets. It’s like a chicken-and-egg problem: workers move to where the jobs are, and employers move to where the workers are.