Quality of the Business Environment Versus Quality of Life: Do Firms and Households Like the Same Cities?

Abstract

This paper develops a new measure of the quality of business environment that complements existing measures of the quality of life. An annual panel of these measures is constructed and analyzed for 37 cities from 1977 to 1995. Findings indicate that many cities attractive to firms are unattractive to households, and vice versa. In addition, the size of a city's workforce increases with improvements in the quality of the business environment. In contrast, cities most likely to be dominated by retirees are those that are less attractive to firms. Additional specifications support theoretical arguments that retirees are drawn to cities in which local attributes are capitalized into lower wages rather than higher rents. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.