The impact of regional location factors on job creation, job destruction and employment growth in manufacturing

Abstract

Regions are exposed to intensive competition to provide the most attractive location conditions for firms and their employees. Therefore, regional employment development depends to a decisive degree on the attractiveness of regional location factors. Based upon the creation of establishment-level panel data from Official Statistics for manufacturing in Baden-Wuerttemberg, Germany, from 1980 to 1999 this paper gives an empirical analysis of the impact of regional location conditions on regional manufacturing employment growth. In particular, the paper examines whether the impact of regional location conditions on regional net employment growth is driven by the underlying gross components job creation and/or job destruction. The results indicate that lower regional costs of production and a better regional endowment with skilled labour and R&D promote manufacturing employment growth. Thereby, lower costs of production as measured by a lower wage level stimulate employment growth by decreasing gross job destruction, while a better human capital endowment and a higher regional R&D intensity enhance employment growth by higher rates of gross job creation. Regions characterised by a smaller average firm size in manufacturing experienced higher manufacturing employment growth both by higher rates of job creation and lower rates of job destruction. On the other hand population density stimulates job creation as well as job destruction which lead to a zero effect on the scale of net employment change—indicating a compensation effect “behind the scenes”. Otherwise, the analysis reveals the tendency for regional location factors to influence either only gross job creation or only gross job destruction, but seldom both sides at the same time.