The idea that people want to go to where the jobs are is intuitive yet is absent from the standard quantitative spatial modelling approach in which location choices are guided by prices, without reference to quantities (the number of jobs in a place). The purpose of this paper is to fill this gap by making jobs, as well as places, the objects of household choice. This involves minor change to the modelling approach used in the literature and provides a simple description of labour market matching. Similar modification of the modelling of firms' location choices captures the idea that these are shaped by both wage costs and the availability of workers with appropriate skill. These modifications yield powerful agglomeration forces, as workers' location choices become positively influenced by the number of jobs in a place, and firms' decision are shaped by the number of workers with appropriate skills. Results are established analytically and in a regional model in which the equilibrium distributions of workers and sectors are demonstrated.

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19 March 2025     Paper Number CEPDP2087

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This CEP discussion paper is published under the centre's Urban programme.