Matching, centrality and the urban network

We propose a search and matching model of the urban network. When geography is fixed and the job finding rate decreases with distance, the interplay between firm entry and worker migration generates an equilibrium allocation in which productive agents cluster in a few large central cities where matching is more assorted and profitable, while many small peripheral cities retain low-skilled workers. Counterfactual experiments suggest that (i) small transfers to the periphery hurt everyone, while large transfers can achieve a more efficient, decentralized organization; (ii) lower frictions deconcentrate the network and benefit everyone.